From our website, the investment philosophy of Dattilio & Ash Capital Management centers on long-term strategic asset allocation as the primary driver of portfolio returns, and diversification across asset classes as the key method of managing risk.
We actualize this philosophy by building risk-managed, diversified portfolios primarily composed of low-cost, passive exchange-traded funds (ETFs).
Most portfolios begin with a core allocation to large-cap U.S. equity indices like the S&P 500. We then broaden diversification by adding small- and mid-cap equities, as well as international developed and emerging market equities. Depending on a client’s risk tolerance, most portfolios also include exposure to fixed income, such as investment-grade corporate bonds, to help smooth out volatility and balance risk.
This approach is designed to track the performance of broad diversified markets, both up and down. While it may reduce the likelihood of dramatic outperformance ("home runs"), it also reduces the risk of dramatic underperformance ("strikeouts"). For most clients with a long-term horizon, this consistent and disciplined approach is preferable.
However, current market conditions present an unusual dynamic. Some mega-cap tech stocks have grown to occupy oversized positions in the major indices, which means that even well-diversified portfolios may have higher-than-usual exposure to just a few names.
For example, Nvidia, Microsoft, Apple, and Amazon currently make up 24.4% of the S&P 500 index. That means a portfolio with a 30% allocation to the S&P 500 effectively has a 7.3% exposure to just four companies—a level of concentration that highlights the importance of broader diversification.
As seen in the YTD chart below, these stocks have produced mixed results, which can introduce unintended volatility into client portfolios.
When markets rally on the strength of these tech leaders, that concentration is helpful. But no one knows when the rally might end—or when leadership might shift. That’s why Dattilio & Ash will continue to manage portfolios based on each client’s target risk profile, using broad diversification to help smooth returns across their investment horizon.