Back in the days when there were actually paper “boys” delivering the news rather than mobile phone alerts, I was in the trenches. Now, a 10-year-old with a little pocket money meant two things in my world. First, there was always a healthy bounty of junk food and full-sugar soda, along with the not-so-healthy waistline to prove it, and second, fervent, small-time gambling. Growing up in Wisconsin in the late ‘70s and early ‘80s, gambling meant two things: sheepshead (if you don’t know, I can’t explain it) and pro football. In that pre-fantasy football universe, you picked one or more games “heads-up” against a school friend for $1 or $2 a pop. It was also a time where other than your home team (Packers, of course), there was likely little knowledge of other teams beyond their superstars and helmet designs. In this “homer-driven”, simpler time of football fandom, betting against the Packers was usually easy money (unless they were playing the Lions). I said I was a fan, but it was the late ‘70s and early ‘80s, and I was also a young capitalist.
Looking back at portfolio composition during this same period shows some of the same “homer-like” tendencies in construction and maintenance. Most institutional investment portfolios (DB, DC, etc.) typically went one-stop shopping to a brokerage firm or local bank trust company for portfolio management services. This lack of focused competition created little pressure on fees and a domain of all-weather balanced portfolios. If you wanted something other than traditional stocks and bonds in your portfolio, look no further — your current provider had it all under the same roof. Relationships ruled the roost during this period, as independent, objective guidance was rare. Investment consulting was only in its infancy and largely focused on data gathering and aggregation rather than advice. Times have certainly changed.
While “homerism” is certainly still alive and well (I can’t imagine betting against the Packers today), the advent and meteoric growth of fantasy football has changed the dynamics of how fans view and evaluate the game. Put simply, fantasy players have choices. Fans are no longer stuck with their local market team (thanks, Sunday Ticket). They can create their own powerhouse team(s) using a variety of readily available venues with no borders, choosing glory (and cash) over hometown pride. Building investment portfolios is no different.
Just as the rise in personal computing power and the ease of gathering analytical information fostered growth in fantasy football, these same factors resulted in the growth of specialized (and segmented) investor portfolios. Investors, no longer bound to a single provider, largely eliminated balanced managers in favor of broadly diversified portfolios with best-in-class strategies. This investment evolution led to stronger performance and lower fees in most cases. In addition, this wealth of investment choices, and often outsized marketing claims, also gave rise to the independent investment consultant. As an investor’s gatekeeper, consultants are charged with sifting through the noise and assisting in the construction of powerhouse portfolios, regardless of the manager’s locality. Diligent investors also value independent, objective and accountable transparent guidance from their investment consultant. So, what’s next?
While I’m not a practicing “futurist”, some form of virtual reality with drag-and-drop replays from multiple angles and on-the-fly helmet cams seems an inevitable evolution in football fandom. However, for portfolio design, a vision of the future is a little cloudier. Although many claim the Outsourced Chief Investment Officer (OCIO) model is the next logical advancement, from our perspective, such a move seems more like a rhyme of “homerism” history than an advice evolution. Whether it’s a traditional consulting firm bifurcating its resources into traditional and OCIO business lines, or an exclusive OCIO firm with a “closed-platform” offering, neither iteration appears optimal from an investor perspective. While an OCIO model does represent 100% accountability (there is no one else to point to when performance suffers), the inherent lack of independence, objectivity and transparency creates a potential misalignment of OCIO and investor measurements success. While an investor’s desire to “throw up their hands” is certainly understandable in a realm of limitless choices (all promising greatness), OCIO is not a move in the right direction. Go Pack!