With the now-finalized acquisition by Envestnet of FundQuest, Tim Clift has become chief investment strategist of Envestnet|PMC, the portfolio research and construction arm of Envestnet. His role, Clift said in an interview in New York on Jan. 17, will be to focus on fundamental research and on portfolio construction, while Brandon Thomas, CIO and a co-founder of Envestnet, will set policy internally and oversee the research functions of the entire company. “I’ve been a proponent of goals-based investing for a long time; Envestnet has developed the tools to help” advisors take that approach, he says.
Fundquest’s senior team of analysts in Boston, including Clift (left), will provide more of a qualitative research complement to Envestnet|PMC’s more quantitative analysts in Chicago and Denver, he said. “My focus will be on applied research,” said Clift, noting that “advisors are doing their own research, but not fundamental research.” While he and his team will be making suggestions on portfolio construction using PMC products and third-party portfolios from partners on the Envestnet platform such as Brinker Capital and Russell Investments, Clift said “you don’t have to choose our products” to reap the benefits of Envestnet|PMC’s research. Moreover, he predicts that there will be more written research briefs from Envestnet’s now-reinforced analyst corps. “We’ve always forced our analysts to write; it’s a part of their bonus program.”
There are three main areas of that “applied research” on which Clift and his team will focus in 2012, all with implications for advisors.
1) Liquid alternatives. Envestnet|PMC’s work on liquid alternatives started as pure research, Clift recalls, but “we came up with seven different alternative asset classes,” to help answer the question ‘How do you use them in portfolios?’ Nobody else has given out guidance on that yet.” Advisors’ increased interest in alternatives was piqued by the 2008-2009 financial crisis, but “advisors want to see the research behind” the value of using alternatives in client portfolios.
2) Dividends. “There is lots of money going into dividend-paying vehicles,” Clift said, noting that in an “in a flat year for the S&P, the Dow was up because of [those big companies paying out] dividends. He said PMC will work on identifying ETFs and SMAs to deliver dividends, mentioning in passing that some decent “emerging market debt can bring you 7% to 8%” in yield.
3) Tactical Portfolios. Again partly a reaction to 2008-2009, Envestnet|PMC ‘s research will work to provide advisors with the research and vehicles to help answer the demand for tactical portfolios.
As for how Clift sees the economies and markets, when asked to comment on the likelihood of a recession in Europe, Clift says “Europe is already in a recession, just not technically. Their cuts are already taking place, while in the U.S., our cuts are still a couple of years away.” In the U.S., he doesn’t see “any storms this year; not a lot of hidden risks.” Referring to research conducted on correlation, Clift says advisors can expect “higher correlations at least through the presidential election.”
But will the prospects of rising energy costs stall the still-fragile economic recovery? While rising oil prices could impact China and other emerging markets, he argues that “the impact of energy costs will be less and less” of a threat to the American economy, citing the U.S. position in 2011 as a net exporter of petroleum products, the country’s massive natural gas reserves and its increased production of crude oil.
As for advisors, he says that they are better now at managing client expectations, and less likely to be “completely defensive” when it comes to investing strategies, noting that a buy-and-hold approach doesn’t work in all markets.
In a 2010 interview with Clift for AdvisorOne in which he pooh-poohed the then-current fears of a bond bubble, he talked about the risk-averse culture at FundQuest parent BNP Paribas. When asked what the primary culture was like at Envestnet, he answered, “It’s advisor-centric–if it helps advisors, Envestnet wants to be in it.” As for his team’s role, he says, “The more ammo we can give to advisors, the better.”