New Frontier Advisors keeps it in the family
Father and son team Richard Michaud, PhD, President & CEO and Robert Michaud (pictured), Chief Investment Officer, lie behind New Frontier Advisors, a firm that has featured global multi-asset portfolios for over 15 years, based on 15-25 ETFs. The portfolios are globally well-diversified and designed for long term total return, with six risk levels.
Robert Michaud explains that the family firm is essentially a research company at heart, started by his father, one of the original Quants of Wall Street, named for their ability to apply mathematics, finance, and computer skills effectively to investment.
Robert Michaud was his father’s research assistant (underpaid) while at high school, modelling and producing Monte Carlo simulations.
“Thirty years later, it was a good investment for him,” Michaud says. “What we have done is model uncertainty and that has been a theme in a lot of our work.”
The firm now manages USD4 billion in ETF strategies with a range of RIAs and broker dealer clients, raised through a number of platforms.
“We are very much a globally diversified strategist investing in almost every asset class that has a positive relationship between risk and return,” Michaud says. “It’s not a static portfolio and it’s something a bit different from the traditional investment style.”
The firm prides itself on not picking stocks or timing the market. “We have a sophisticated and evolving view of what the risk and return relationships are across all asset classes.”
The firm has always been globally diversified but there has recently been more of a demand in the US for a domestic tilt as investors became impatient waiting for international markets to perform as well as the US markets, Michaud says.
Early 2020 market volatility has not been good for anyone but he reports that their portfolios have performed the way they should.
“A lot of investors found it reassuring during peaks of volatility that they weren’t in the most aggressive portfolios but in a more balanced one that performed relatively much better than the headline numbers of the S&P 500 or the Dow Jones.”
Michaud says: “One thing I couldn’t agree with was that view that all correlations go to one. What happens is there is an enormous increase in volatility and many risk assets go down but not in the same way. Other types of assets such as Treasury Bonds do extremely well during this time period.”
Michaud has recently written a paper on target-date funds (TDFs). He writes that though activity in these funds has exploded in the last few years, TDFs suffer from lock-in, making them unresponsive to the kind of changing market conditions that have been seen lately, or to changes in personal situations.
He believes that, because of their laser-like focus on maturity date alone, TDFs are often composed of mediocre or poor underlying investment strategies.
“I think that the problem with them is that they have a limited ability to evolve in highly volatile situations,” Michaud says. “Particularly the TDFs that try to just ignore current market conditions because they are designed for a long term but not doing the best for investors.”
Michaud believes that the world is not a static environment and risk and return relationships change and evolve over time. “If you are trying to produce best risk adjusted returns for investors you need to adapt your portfolios and evolve and TDFs really can’t do that in a dynamic way. They can’t address the needs for individual investors in a fund that only looks at your age.”
Michaud believes that the solution is multi-asset income portfolios, based on ETFs, designed to provide an income from a transparent, low cost and highly liquid method. “Investors should focus more on risk target funds as an alternative than targeting a specific date,” Michaud says.