Markets change. Are your portfolios keeping up? If you are using traditional, old-school asset allocation techniques for client portfolios, the answer is probably, no. At Sowell, we’ve broken free from the past and utilize Modern Portfolio Diversification™ (MPD™) when designing client allocations. This new-age approach to portfolio design keeps clients in tune with changing markets and can help take an advisor’s practice to the next level.

Modern markets require modern thinking. MPD™ (a technique trademarked by Sowell) is just that – a modern approach to developing properly diversified portfolios for today’s markets. Traditionally, a diversified portfolio has been split among U.S. stocks, foreign stocks, bonds, and cash. More recently, the concept has been expanded to include additional asset classes such as real estate, gold, commodities, emerging markets, and foreign bonds.

However, since the turn of the century, investors have learned that traditional diversification strategies focusing on asset classes did little to protect them from the two brutal bear markets that occurred within a nine-year span. As such, Sowell believes that classic asset allocation alone has fallen well short of investor’s needs.

If the brutal bear cycles of 2000-02 and 2008 taught advisors anything, it is that traditional diversification is not enough in today’s fastmoving environment. Sowell’s Modern Portfolio Diversification™ approach takes a different tact. Instead of diversifying solely by asset class, the MPD™ approach diversifies client portfolios across multiple strategies, managers, and investment methodologies to help hedge against whatever comes next.


WHAT IS MPD™?

Modern Portfolio Diversification™ is the approach to portfolio diversification utilized at Sowell Management Services. An MPD™ allocation is created by moving beyond the traditional strategy of mixing of asset classes. At Sowell, we believe that Modern Portfolio Diversification™ is achieved by incorporating:

  • Multiple Strategies
  • Multiple Managers
  • Multiple Investment Methodologies
  • Multiple Time Frames

… And then diversifying across all of the above in a customized fashion in order to meet the individual needs of each and every client. Sowell’s dedicated Portfolio Design Team works with financial advisors and their clients to create properly diversified portfolios.


THE GOALS OF THE MPD™ APPROACH

While there are never any guarantees in investing, the primary goal of the MPD™ approach is consistent, long-term investment performance. There is obviously no such thing as “set it and forget it” in today’s investment markets. However, employing a properly diversified portfolio consisting of multiple strategies, managers, and investment methodologies may be the next best thing. In our opinion, this modern day approach to investing allows clients to “buy and hold” their diversified portfolio again.

The main goals of the MPD approach are:

  • Diversify across multiple strategies, managers, methodologies, and time frames.
  • Avoid the “8 buckets of white paint” diversification.
  • Protect against the singular failure.
  • Hold your diversified strategies and be able to sleep at night!

Creating MPD™ Allocations

At Sowell, we believe that building Modern Portfolio Diversification™ into client allocations involves a series of well-defined steps. To be sure, some of these steps are as old as the hills. Yet others involve a more modern approach to investing and portfolio design.

  • Step 1: Define client goals
  • Step 2: Define client risk parameters
  • Step 3: Develop a custom investor policy statement
  • Step 4: Develop a customized client benchmark
  • Step 5: Identify the preferred investing Styles/Methodologies to be used
  • Step 6: Identify the preferred Strategy Types within each style/methodology
  • Step 7: Let the Sowell Portfolio Design Department create multi-manager, multi-strategy, multi-methodology portfolio using the Sowell Portfolio Solutions Platform

The result of this process is a well-intentioned “modern” portfolio of investment strategies designed to meet the client’s specific goals, objectives, and risk tolerance.

For example, a typical MPD allocation may include strategic allocation strategies, tactical solutions, alternatives, individual equities, risk management techniques,and perhaps even an absolute return strategy if warranted.


How to Build an MPD™ Allocation

This is the easy part. Simply contact the Sowell Portfolio Design Department, complete the Portfolio Design Request Form, and we will take care of the rest. Our team of investment professionals will then customize an MPD™ allocation designed to meet your client needs and objectives. And in order to make sure that the designs meet Sowell’s internal standards of excellence, each and every MPD™ allocation is reviewed and approved by our Investment Committee.

So, crack the code. Break free of the past. Stop trusting your clients and your business to portfolio “theory” that was developed in the 1950’s. It is time to modernize your thinking, your strategies, and your approach to portfolio design. Do yourself and your clients a favor by employing Sowell’s Modern Portfolio Diversification™ strategies in your practice today.

Download the Portfolio Design Request Form


MPD™ in Action – See the Difference

Still not sure what MPD™ is all about? Sometimes a visual example can help bring everything together. Below is a sample MPD™ allocation designed for a typical “moderate growth” or “balanced” investor versus what the industry-standard “diversified” allocation provides.


MPD™ Models Available Pre-Built & Customized

Sowell’s MPD™ models have been designed to meet an array of goals and risk tolerances for investors with account sizes of $250,000 and above.  In addition, our Portfolio Design Team is available to customize portfolios for investors with $500,000 or more.

Click the boxes below to see the available MPD™ models, Stratactical Models, PPP models, and other blended strategy options:

MPD™ Models | $250,000 Minimum


MPD™ Total Return

The portfolio is designed to produce current income with a secondary goal of modest capital appreciation. The MPD™ Total Return portfolio includes strategic allocation programs (Sowell AMP Bond and Sowell Global Macro Conservative), equity selection (Sowell Flagship Dividend), and tactical allocation (Sowell Focus High Yield). This portfolio is appropriate for investors with a time horizon of three years or more. Risk level is considered to be very conservative.

Typical allocation range is: 22% – 32% Equity | 68 – 78% Fixed Income/ Money Market.


MPD™ Income & Growth

The portfolio is designed to produce current income with a secondary goal of minimal-to moderate capital appreciation. The MPD™ Income & Growth portfolio includes strategic allocation programs (Sowell AMP Income & Growth and Sowell Global Macro Core), equity selection (Sowell Flagship Dividend), and tactical allocation (Sowell Focus High Yield). This portfolio is appropriate for investors with a time horizon of five to seven years. Risk level is considered to be conservative.

Typical allocation range is: 33% – 45% Equity | 55% – 67% Fixed Income/Money Market.


MPD™ Conservative

The portfolio is designed to produce current income with a secondary goal of moderate capital appreciation. The MPD™ Conservative portfolio includes strategic allocation programs (Sowell AMP Conservative and Global Macro Conservative), equity selection (Sowell Flagship Dividend), and tactical allocation (Sowell Focus High Yield and Sowell TAP Conservative). This portfolio is appropriate for investors with a time horizon of five to seven years. Risk level is considered to be conservative.

Typical allocation range is: 28% – 51% Equity | 49% – 72% Fixed Income/Money Market.


MPD™ Balanced

The portfolio is designed to produce a balance of current income with capital appreciation. The MPD™ Balanced portfolio includes strategic allocation programs (Sowell AMP Balanced and Sowell Global Macro Core), risk-managed equity selection (Sowell Flagship Top Stocks), and a tactical allocation program (Sowell TAP Complete). This portfolio is appropriate for investors with a time horizon of five to seven years. Risk level is considered to be moderate.

Typical allocation range is: 28% – 78% Equity | 22% – 72% Fixed Income/Money Market.


MPD™ Growth

The portfolio is designed to produce long-term moderate capital appreciation. The MPD™ Growth portfolio includes strategic allocation programs (Sowell AMP Aggressive and Sowell Global Macro Growth), equity selection (Sowell Flagship Equity), and tactical allocation (Sowell TAP Stock/Bond). This portfolio is appropriate for investors with a time horizon of seven to ten years. Risk level is considered to be moderately aggressive.

Typical allocation range is: 51% – 94% Equity | 6% – 49% Fixed Income/Money Market.


MPD™ Global Growth

The portfolio is designed to produce long-term moderate capital appreciation. The MPD™ Growth portfolio includes strategic allocation programs (Sowell AMP Global Growth), equity selection (Sowell Flagship International Stock and Sector), and tactical allocation (Sowell TAP Stock/Bond and Sowell Global Allocation). This portfolio is appropriate for investors with a time horizon of seven to ten years. Risk level is considered to be moderately aggressive.

Typical allocation range is: 45% – 95% Equity | 5% – 55% Fixed Income/Money Market.


MPD™ Aggressive Growth

The portfolio is designed to produce long-term capital appreciation. The MPD™ Aggressive Growth portfolio includes strategic allocation programs (Sowell AMP Aggressive), equity selection (Sowell Flagship Equity), and tactical allocation (Sowell TAP Stock/Bond 2X). This portfolio is appropriate for investors with a time horizon of seven to ten years. Risk level is considered to be aggressive.

Typical allocation range is: 63% – 130% Equity | 0% – 37% Fixed Income/Money Market.

Stratactical Models | $50,000 Minimum


SMS Stratactical portfolios are designed to be core holdings for investors seeking a modern approach to diversification, which we define as incorporating multiple investing methodologies, multiple strategies, and multiple managers – all in a single portfolio.

SMS offers three risk-targeted Stratactical models: Conservative, Balanced and Growth.

As the name implies, Stratactical models blend the strategic and tactical allocation methodologies. Strategic allocation portfolios typically focus on asset class diversification, fund selection, opportunistic rebalancing, and long-term allocation tilts. Whereas, the tactical allocation approach tends to shift portfolios to (a) take advantage of perceived opportunities and/or (b) preserve capital during severe market declines.

We believe one of the key benefits of the Stratactical method is the added diversification provided. For example, in addition to the traditional approach of diversifying portfolios by asset class, Stratactical portfolios utilize three or four separate investing strategies and multiple managers. The objective of the approach is to attempt to minimize the correlation of strategy under-performance. While any methodology, strategy, and/or manager may under-perform in any given year, the goal of the Stratactical portfolio is to reduce the likelihood of all strategies/managers under-performing at the same time.

In sum, the SMS Stratactical portfolios provide a blend of broad market strategic and tactical allocation methodologies aimed to manage risk and provide appropriate exposure to core asset classes given the risk profile of the client.


Stratactical Conservative

A blended portfolio employing strategic and tactical investing methodologies, multiple strategies, and multiple managers. The portfolio is designed to produce both current income and conservative capital appreciation over time.  The Stratactical Conservative portfolio blends strategic allocation programs (Sowell AMP Conservative and Global Macro Conservative) and tactical allocation programs (Sowell Focus High Yield and Sowell TAP Conservative). The allocation to asset classes are intended to adapt to changing market environments. The investment committee may change allocations to specific Sowell portfolio strategies at any time and without notification. This portfolio is appropriate for investors with a time horizon of five to seven years. Risk level is considered to be conservative.

Typical Allocation: 18% – 49% Equity | 51% – 72%  Fixed Income/Money Market.


Stratactical Balanced

A blended portfolio employing strategic and tactical investing methodologies, multiple strategies, and multiple managers. The portfolio is designed to produce a balance of current income with capital appreciation. The Stratactical Balanced portfolio blends strategic allocation programs (Sowell AMP Balanced and Global Macro Core) and a tactical allocation program (Sowell TAP 2X).  The allocation to asset classes are intended to adapt to changing market environments. The investment committee may change allocations to specific Sowell portfolio strategies at any time and without notification. This portfolio is appropriate for investors with a time horizon of five to seven years. Risk level is considered to be moderate.

Typical Allocation: 29% – 100% Equity | 0% – 71%  Fixed Income/Money Market.


Stratactical Growth

A blended portfolio employing strategic and tactical investing methodologies, multiple strategies, and multiple managers. The portfolio is designed to produce long-term capital appreciation.  The Stratactical Growth portfolio blends strategic allocation programs (Sowell AMP Aggressive and Global Macro Growth) and a tactical allocation program (Sowell TAP 2X).  The allocation to asset classes are intended to adapt to changing market environments. The investment committee may change allocations to specific Sowell portfolio strategies at any time and without notification. This portfolio is appropriate for investors with a time horizon of seven to ten years. Risk level is considered to be aggressive.

Typical Allocation: 42% – 120% Equity | 0% – 58%  Fixed Income/Money Market.

 

PPP Models | $250,000 Minimum


These multi-manager/strategy portfolios are strategic in nature. The programs include individual stocks, individual bonds, cash and alternative investments is designed specifically for the needs of the high net worth investor. The manager creates a portfolio based upon the investor’s risk tolerance, liquidity needs, time horizon, tax considerations, and other factors.

The portfolio offers additional features over and above investment management that can be utilized by each client who has a particular, specific need, including but not limited to, cash management, tax management, restriction of holdings because of concentrated positions outside of the account, etc.


PPP Conservative

Provides current income with a secondary objective of capital appreciation to preserve long-term purchasing power. The typical portfolio contains domestic and international small and large cap equities, fixed income instruments, and alternative investments.

Typical Allocation: 35%-45% Equities, | 0%-30% Fixed Income/Alternative Investments/Money Market


PPP Balanced

Provides capital appreciation to preserve long-term purchasing power with a secondary objective of current income. The typical portfolio contains domestic and international small and large cap equities, fixed income instruments, and alternative investments.

Typical Allocation: 50%-60% Equities, | 0%-40% Fixed Income/Alternative Investments/Money Market


PPP Growth

Provides long-term capital appreciation along with a similar allocation to more stable income-producing investments. This typical portfolio contains a domestic and international small and large cap equities, fixed income instruments, and alternative investments.

Typical Allocation: 70%-80% Equities, | 0%-20% Fixed Income/Alternative Investments/Money Market

Diversified Risk Management System (RMS) | $25,000 Minimum

A long-term, multi-strategy tactical / liquid alternative portfolio designed to seek long-term capital appreciation and to reduced exposure to market risk during severely negative market environments. Commonly used as a risk management overlay with other Sowell strategies. The management team will determine the proper allocation to tactical / strategic / liquid alternative strategies employed in the portfolio. Allocation to strategies may change at any time without notification. The portfolio will utilize open ended mutual funds or ETFs in the equity, bond, commodity, liquid alternative and money markets. This portfolio is appropriate for investors with a time horizon of seven to ten years. Risk level is considered to be moderately aggressive.

Typical Allocation: 0%-67% Equity | 0%-33% Liquid Alternatives | 0%-13% Bonds | 0%-100% Money Market.


In a nutshell, the Diversified RMS is a risk management overlay utilized in conjunction with other SMS solutions to provide downside protection to a portfolio invested in Strategic or Individual Equity Solutions. The program contains:

  • 33.3% Long Term Risk Management System
  • 33.4% TAP Stock/Bond 1X
  • 33.3% Alternative Diversified

The makeup of the Diversified RMS includes three programs, two investment styles (Tactical and Liquid Alternatives), three managers / research providers (Sowell, Heritage, Ned Davis Research), diversification across asset classes, and risk managed solutions with the ability to raise cash in bear markets.


How We Utilize the Diversified RMS

We like to overlay the Diversified RMS on top of Strategic or Individual Equity solutions to provide a diversified, risk-managed approach to clients who would like downside protection in their portolio but do not meet the $250,000 minimum requirement for a PPP or MPD allocation. We can blend the Diversified RMS into any of the following SMS Solutions:

  • AMP Bond
  • AMP Total Return
  • AMP Income & Growth
  • AMP Conservative
  • AMP Balanced
  • AMP Growth
  • AMP Global Growth
  • AMP Aggressive Growth
  • Global Macro Conservative
  • Global Macro Core
  • Global Macro Growth
  • Flagship Dividend
  • Flagship Equity
  • Flagship Value
  • Flagship International

As an example, a moderate growth client with a $31,000 IRA who would like risk management might get an allocation that looks like this: 50% AMP Balanced, 50% Diversified RMS. This effectively gives the client four programs, three managers / research providers, exposure to three styles of investing, and significant downside protection – all for a low minimum.


Learn More

 For more information on MPD™ or other Blended Solutions, please inquire and we will be happy to provide additional information.