Interview with CIO Robert Michaud on "Money Life with Chuck Jaffe" Podcast

On April 3, 2020, New Frontier Chief Investment Officer Robert Michaud sat down with Money Life host Chuck Jaffe to discuss how New Frontier approaches optimality in a time of tremendous uncertainty in the market. You can listen to the interview in its entirety using the player above, and below is a partial transcript of Robert's responses with timestamps for reference.

Portfolio theory is important and should be the fundamental question that any asset manager or portfolio manager is thinking about which is – how to construct a portfolio for a specific investment objective with some concept of risk to maximize returns. So investors should always be trying to maximize returns and minimize risk whatever that investment is.

But – how do you do that in a scientific process driven way?

Harry Markowitz won a Nobel prize for coming up with a great framework as to how people should mathematically diversify portfolio risk. But there was a problem with that process – which assumes you had perfect information about risk, returns and correlations with everything you’re investing in.
The big idea we had – I did work with my dad where we wrote a book, published it and started a firm – was based on these ideas…

And to think about in a very uncertain world, how do you optimize a portfolio?

And the solution we came up with is – no one can possibly know what the risk/ returns and the correlations of all the different assets they are interested in, but we can model literally thousands of scenarios, where we make errors in all kinds of different directions, but are still doing the best we can and then we can look across the uncertain futures to solve for the portfolio most likely to be optimally diversified to meet your investment objectives and that’s what we did.

I’m not sure anyone can be fully comfortable in this situation, but having a very well diversified portfolio helps. Certainly in a time like now, where the future is so uncertain, you don’t want to be betting on the past trends continuing on in the future.

You want to be highly diversified across all individual stocks, across all sectors of the economy, across all risk factors – you also want to be geographical diversified.

There’s never been a time when geographical diversification – maybe other than WWII – has been so important because – honestly, no one knows how this will play out globally.

But, I think if you have a globally diverse portfolio, then sooner or later, when the economy emerges from this and continues to grow again, then your portfolio will have some exposure to that.

I take an empirical approach to a lot of things and I don’t think it makes a lot of sense to put a whole lot of effort into looking at past pandemics and specific situations that look like this, but to look more broadly at past crisis and what we’ve seen is that an event happened, markets react, volatility spikes, but then what happens after then…?

Two things have happened:

Risk is persistent and very high in a statistical meaningful way. And, return is also high following the event, so this confirms that as the market figures out what’s going on, there’s a lot of uncertainty and investors are kind of rewarded on average for sticking through that.

But they are taking a great deal of risk, and there’s an enormous dispersion of outcomes.
So while future return is high, future risk is high too – there’s no free lunch, but it does confirm common sense that most investors should be better off sticking with their investment plan –assuming it was a good one – rather than panicking or getting greedy.

From an asset manager's perspective, we have 3 choices during a time like this:

  • One is, we can do nothing and say markets are efficient and ignore everything.
  • Or you can try and be tactical, time markets and try and pick individual stocks in different asset classes. Although there is a fine line between smart and speculative…
  • I like to be thoughtful, take a step back, and think about what are good practices in ALL environments.

During all environments you want to have up to date risk/ return expectations, an understanding of what global markets look like right now, not what they looked like in the past, but not speculating about them – you always want to have a well-defined portfolio. You always want an efficient portfolio, you want to focus on risk management and look at your portfolios on a very frequent basis at a time like now and rebalance.

Asset managers should be responsible during a time like this and not leaving everything up to the advisors to figure it out. Our job is risk management and following our investment mandates to give a transparent implementation of what we were going to do all along.


Jaffe, Chuck. "SmartPortfolio's Welsh: Expect a big leg down before the market truly rallies". Money Life with Chuck Jaffe. Podcast audio, April 3, 2020.


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