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Your Portfolios Are Very Simple. Why is That?

Investment managers are masters at making things look more complex than they need to be in order to justify charging their high fees.  One of the biggest red flags in a portfolio is the quantity of holdings you have. If you hold more than 10 positions there’s a strong possibility that you are a victim of high fee DIWORSIFICATION.  That is, diversification that actually makes performance worse by making things appear more complex than they really need to be.

The reality is that a portfolio can be diversified without having 10 or 20 holdings. Most of Orcam’s portfolios have fewer than 5 holdings because simplicity makes management more efficient over time and substantially reduces the overall taxes and fees. You don’t need a complex looking portfolio in order for it to work for you. Our approach focuses on getting your risk profile right and maintaining it over the course of the business cycle so that it doesn’t deviate too far from the market risks.  This is all done in a simple, low fee and tax efficient manner.

Additionally, there are so many unnecessarily complex products on Wall Street these days that cater to this illusion of sophistication. At Orcam we believe that most of these products sell the illusion of sophistication in exchange for high fees. And in many cases they aren’t just resulting in higher fees, but higher risk as well. In recent years many investors have learned the hard lesson that many opaque hedging vehicles like leveraged ETFs or volatility hedging ETFs can be extremely dangerous. Empirical evidence shows that you don’t need these products to build a sufficiently hedged portfolio. We always defer to transparency and simplicity when we build portfolios and that’s why were’ such big believers in market cap weighted index funds.