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Top Dogs: Managing a Large AccountSeries 1: Building A Core Portfolio (1 of 12) | Aug 11, 2015
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    Top Dogs: Managing a Large AccountSeries 1: Building A Core Portfolio (1 of 12)Aug 11, 2015

    This segment is the first in a special 12 part series focusing on large accounts ($250K to $2.5 million) and how to build, trade and manage a portfolio for such accounts. A broad range of topics will be covered.

    The first step in actively managing our own investments is to establish a core portfolio. We then will trade around that portfolio in order to enhance alpha. This first segment though focuses on what types of products to use and why and how different combinations perform.

    Five ETFs representing five core industry areas were used. They were SPY for the S&P 500 (big cap stocks), TLT for the Bonds, GLD for Gold, EEM for Emerging Markets and IWM for the Russell 2000 (small cap stocks). These ETFs are liquid products and have liquid options. There is easy entry and exit and the bid/offer is usually 1 cent wide so we know the prices are fair.

    A total of 243 different combinations were examined over the last year. They combined the different ETFs in various long and short positions. An example was shown of two possibilities. The study also assumed a 2% management fee which is what the cost would be from many money managers.

    The average investment lost 2% (the management fee). The best portfolio returned 14% and the worst lost 18%. Taking out the fee from the best and the worst the percentage would have been the same with the best up 16% and the worst down 16%. The average of (just barely more than) a 2% loss equates to a loss of $5008 for a $250K account. The $5K hit from the fees hurts winning portfolios and makes losing ones that much worse. A table showed the expected moves for the different products and what one would expect. The real difference will be from avoiding fees and in enhancing alpha.

    Watch this segment of "Top Dogs" and the rest of this compelling series, with Tom Sosnoff and Tony Battista to better understand how to create and manage a portfolio for your larger account.

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