We work with some of the best financial advisors in the world.
Thank you, Robert, for the great feedback.
Today’s spotlight shines on…
Robert Ruggirello, from Brave Eagle Wealth Management
Q. How did you get started with HiddenLevers?
We were searching for a stress testing platform to provide a non-biased third party view of the drawdown risk in our portfolios. We selected HiddenLevers based on the sound quantitative framework. In addition, the website is visually appealing, easy to navigate, and produces elegant reports.
Q. Why is Stress Testing important to Brave Eagle Wealth Management?
We believe that large unexpected draw-downs that exceed investors’ risk tolerance are what cause investors to quit on their long-term plans. We are focused more on this drawdown risk than we are on annualized volatility. We estimate and quantify each client’s breaking point, and build custom portfolios that have estimated drawdowns that do not exceed that level, to avoid panicked selling at the bottom.
Q. How have you applied HL’s tools to your practice?
A specific risk that we focus on with our clients is inflation, and there are several inflationary scenarios in HiddenLevers that we use. We have found that we can improve expected results in the inflationary scenarios without sacrificing expected results in other scenarios across the board. We believe this can only be accomplished through proper diversification. Hidden Levers helps us to quantify the level of diversification.
Q. Do you use any HL tools besides Stress Testing?
In addition to stress testing, we have also incorporated the correlation screener into our due diligence process. The correlation screener helps us to identify truly unique strategies that contribute to diversification at the portfolio level.
Q. Does HiddenLevers help with transparency?
Yes. Advisors typically provide clients with one estimate of return and one of risk, i.e., “expected return” and “expected volatility”. An example would be a portfolio with expected returns of 5% and expected volatility of 10%. Hence, returns should fall between -5% and 15%, about 2/3rd’s of the time. Even if returns were normally distributed, what about the other 1/3rd of the time? That is a big number that is not accounted for. From the client’s perspective imagine losing 30% when you were told your portfolio should earn 5% with 10% volatility. We believe in providing new clients with an estimate of what could happen the other 1/3rd of the time. We do this through stress testing multiple scenarios with HiddenLevers.
Q. What is your advice to others that are considering HL?
Market crises have been happening more frequently than statistics say they should. We think Advisors should stress test portfolios, and disclose the estimated results in the Investor Policy Statement, in addition to expected return and expected volatility.