Brandywine Asset Management commentary for the month ended May 31, 2017.

“It Was The Best of Times…” or Why Investing is Like a Dickens Novel

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In A Tale of Two Cities, Charles Dickens presents the contrast between London and Paris during the French Revolution. But “It was the best of times, it was the worst of times” could also express the near-constant conflict faced by investors. Right now, it is the best of times for equity investors. Stocks are hitting all-time highs. Expectations are high. There’s talk of trillion-dollar companies.
Of course most people realize that the good times don’t last forever. Most of us have lived through one or more “worst of times.” But everyone handles this fact in a different way. For some, they’ll stay aggressively long equities until they reach a point where they feel a top is imminent. Then they’ll sell or at least lighten their long positions. This is market timing (or some prefer to call it “tactical asset allocation”). Others may purchase protection, or “hedge” their exposure.

In reality however, without a plan, people will make the wrong decision and at the wrong time. This continues to be evidenced by the fact that the most money flows into markets at their top, and out at the bottom.

There’s a straightforward solution to the problem and a way to simplify the decision process. Focus on creating diversified portfolios that avoid concentrated bets on single Return Drivers. Portfolio diversification is the one true “free lunch” of investing. It is possible, with a well-diversified portfolio, to both lower risk and increase returns.

But while most people acknowledge the virtues of portfolio diversification, how many actually practice what they and others preach? The answer is “not many.” Often, they don’t want to lose out on further stock market gains, so they wait until it becomes obvious that they should have diversified, then they take money out of their losing positions and put it into those that have more recently outperformed. They take the beauty of diversification and convert it into ugly market timing.

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Diversify now.

When it is the best of times it is also the best of times to rebalance your portfolio. Don’t wait until it’s too late. Here is one of many true cautionary tales. A year or two ago Brandywine had discussions with large holders of Under Armour stock about diversifying their holdings. Even though we showed them a way to both retain substantial ownership and diversify their portfolios, they couldn’t move past the fact Brandywine had just suffered a significant drawdown and UA was near all-time highs. They maintained their concentration. The result is that their portfolios today are at less than half the value they could have been had they diversified. Of course Brandywine could suffer through another drawdown, but there are reasons to suspect we’re in a position similar to stocks in late 2009 (call or email and we can explain why). Furthermore, Brandywine has often gained while stocks fell. Ask us to show you how including Brandywine would have helped you profit throughout the financial crisis and in subsequent equity market selloffs.

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As always, please feel free to contact us by calling or emailing us at our address listed in this report’s header.

Additional Reasons to Invest Now With Brandywine

(Performance of the Brandywine CPU)(2)

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(Non) Correlation (highlighted in table at right) of Brandywine’s Investment Programs to Other Investment Indexes3

It is this non-correlation - combined with Brandywine’s repeatable investment process and broad strategy and market diversification - that makes Brandywine such a positive addition to most investment portfolios.

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Descriptions of the Brandywine Investment Programs(1)

Brandywine trades pursuant to a fully-systematic model that incorporates a wide range of both fundamental and technical trading strategies. Brandywine’s Symphony Program began trading in July 2011 and the performance of the other programs is extracted from the actual performance of trades executed within the Brandywine Symphony Program. “Brandywine CPU” is the composite performance that could have been achieved by allocating across all four Brandywine programs.

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Monthly Performances of Brandywine’s Investment Programs1,4

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