{"id":177525,"date":"2025-06-12T05:03:13","date_gmt":"2025-06-12T05:03:13","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/177525\/"},"modified":"2025-06-12T05:03:13","modified_gmt":"2025-06-12T05:03:13","slug":"why-the-way-were-building-portfolios-is-broken-luke-laretive-vishal-teckchandani","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/177525\/","title":{"rendered":"Why the way we’re building portfolios is broken: Luke Laretive – Vishal Teckchandani"},"content":{"rendered":"

A couple of weeks ago, I invited Luke Laretive<\/a>,\u00a0founder of Seneca Financial Solutions, to take part in a thought experiment: building a 10-investment, long-term growth portfolio to illustrate how an expert might approach growth investing.<\/p>\n

Several advisers embraced the challenge and shared thoughtful submissions. While recognising that a 10-asset portfolio<\/a> is a simplified, hypothetical exercise, Luke saw it as an opportunity to raise a broader concern: that portfolio construction is too often presented to retail investors without sufficient structure, discipline, or strategic intent.<\/p>\n

\n

\u201cI\u2019m particularly scathing and critical of (sadly, most) advisers. They think a couple of index ETFs whacked together with a few pray-and-spray pet stocks they look at once a quarter, an active fund manager (or two) who shouts them a round of golf, and some overpriced thematic product chasing the latest hot sector \u2014 all benchmarked to nothing \u2014 is \u2018high-net-worth wealth management’,” he says.<\/p>\n<\/blockquote>\n

While his comments may raise eyebrows, they also prompt reflection. What\u2019s wrong with the way portfolios are commonly built? And how does Luke believe it should be done instead?<\/p>\n

In this Q&A, he outlines his concerns \u2014 and shares his approach to building more intentional, evidence-based portfolios.<\/p>\n

\"Luke<\/p>\n

Luke Laretive, founder of Seneca Financial Solutions
\nYou mentioned you\u2019re \u201cparticularly scathing and critical\u201d of how portfolios are built. What exactly do you see as the problem here?<\/p>\n

Why am I critical of this? Because clients deserve better. It reflects poorly on the profession.<\/p>\n

I don\u2019t think it\u2019s acceptable that advisers just buy an ETF, a couple of active funds, and a few direct shares, and review it twice a year. I don\u2019t think it\u2019s fair that clients are misled or misdirected by their adviser rather than educated.<\/p>\n

\n

It\u2019s poor process that lacks any real academic rigour. Particularly if it\u2019s implemented inconsistently and lacks accountability for the decisions made \u2014 or a feedback loop for constant improvement.<\/b><\/p>\n<\/blockquote>\n

I think it\u2019s misleading the way the media rarely reports returns on an apples and apples basis. It\u2019s confusing enough for people trying to make the best decision for their family.<\/p>\n

Does core-satellite investing help people manage risk \u2014 or does it just let them feel clever when their bets pay off and shrug off the ones that don\u2019t?<\/p>\n

We think this approach is popular because it emotionally enables people\u2019s desire to gamble with their wealth – they can write off bad decisions as \u201csmall weight\u201d or \u201cjust having fun\u201d while they can get excited and think they are clever when they make good stock\/manager picks.<\/p>\n

In our opinion, this lacks accountability and is completely inconsistent with our investment approach \u2013 we want to exploit other people\u2019s emotional biases while resisting our own (using data to help us.)\u00a0<\/p><\/blockquote>\n

Core\/satellite thinking is consistent with behavioural finance academia around \u201cmental accounting\u201d (explained in point #3 here<\/a>) \u2013 treating a dollar in one bucket as different to a dollar in another. It\u2019s common practice, but completely irrational.<\/p>\n

The solution is to design an investment strategy and your neutral portfolio settings, and then measure your tilts through time.<\/p><\/blockquote>\n

That doesn\u2019t mean buy and hold. It means every day your adviser is ensuring your portfolio is optimally invested. Adjustments shouldn\u2019t be dictated by their busy calendar, but by the opportunities that regularly arise in the global markets.\u00a0<\/p>\n

We’re obviously seeing an enormous shift to passive funds. Investors want to keep their costs down, and advisers want to market lower-fee offerings. But you believe this is short-sighted – why?<\/p>\n

We focus on after-fee outcomes (i.e. I\u2019d rather get a 20% return after paying 10% in fees than a 9.7% return after paying 0.3% in fees). If a manager cannot add value for us after fees, we don\u2019t use them.<\/p>\n

As long as the fees are:<\/p>\n

    \n
  1. Competitive with relevant alternatives, and\n<\/li>\n
  2. Fair in the way they are calculated (correct hurdle for performance fees, high watermark etc.)\n<\/li>\n<\/ol>\n

    Then we do not focus on avoiding fees. We focus on generating exceptional returns for the level of risk each client is able to accept. I also wrote recently<\/a> about why \u201cfee budgets\u201d don\u2019t make any sense to me.<\/p>\n

    How do you select managers for your portfolios?<\/p>\n

    We select active managers where we assess it’s likely to add incremental value to a client’s portfolio \u2013 either in reducing risk, or increasing expected return. When we do this we think in terms of \u201csystematic\u201d vs \u201cdiscretionary\u201d.<\/p>\n