A.I.M. Users Bulletin Board

[OldAIMGuy]

Hi Clive, Re: AIM Business Plan for Long Term Investors...................

Thank you for your well conceived post. On occasion I will watch one of the "business news" channels. Afterward I wonder why I gave up that time for such little value.

When I think about inflation and its awful consequences on the elderly and those dependent upon "fixed income" it heightens my awareness of callous "federal" decisions being made. In the new millennium those who were savers were punished for their frugal nature most years. Even now interest rates across the maturities are far below the current erosion rate of purchasing power.

Does the sun still shine above the clouds? Yes. Real Estate was gaining nicely as inflation ramped up. Having a healthy REIT in ones inventory at their Equity Warehouse not only provided a steady source of income at reasonable annual return, the underlying properties were being reappraised at higher values. As you suggest, it might be good to have a variety of products in the warehouse. Each one will share the sunlight at its own time. Some are in shadows now but later will get full benefit of daylight.

A friend asked me whether a "business sector" AIM portfolio should start with each sector equally weighted. After thinking about it I answered "Only if you don't mind not matching Index performance." I didn't mean it would out-perform or under-perform, just that it wouldn't match. Most indexes are not equally weighted by sector. Right now, for instance, over 60% of the S&P 500 weighting is in just 4 sectors. So, "bench-marking" to attempt to match that index would need to be weighted in a similar fashion even with AIM managing the individual sectors.

Over time, an equity warehouse built with sector ETFs will drift in weights from the designated index after which it is modeled. If it started "equal sector weight" in 10 years that won't be the case any more. If it started as a match to the index weights at the start, in 10 years it won't match the index sector weights. AIM is responsive to the markets, not the index weights.

A similar thing can be said about weighting for income and growth. A 60/40 Growth to Income inventory most likely won't have those same weights in a decade. Is it appropriate to force the warehouse inventory makeup back to that weight? AIM would say no. Do the benefits of such a ratio relative to the warehouse manager's needs override AIM's competent allocations? I can't answer that.

There may be times when adjustments can be made to the ratio that seem appropriate. In my own equity warehouse there have been times when the growth side of the business has built up tremendous amounts of what seemed to be surplus cash. Usually this has occurred as the income side has been trailing in performance but still has good yield. I, as general manager have during those times shifted some of the excess cash to the income side to help compensate for rising living costs. It wasn't done to rebalance to a specific ratio, only to help offset cost of living increases. There might be a better way, but this has worked for me. Such ratio adjustments have been done with the "savings and loan" side of the business.

AIM is a great manager of inventory. Overall it is does a decent job of inventory allocations, too. I'm inclined to let AIM make most of these decisions. I'm not a fan of periodic inventory allocation adjustments. In an environment of 'all ships rising' periodic forced allocation adjustments take money and pump it into inventory that might already be somewhat overpriced. AIM is more sensible than that.

I appreciate your observations. Thanks for bringing the AIM lens into sharper focus.

Best wishes,
OAG Tom
PS: This article on sector weights and capitalization might prove to be informative for some:
https://www.thebalance.com/what-is-the-sector-weighting-of-the-s-and-p-500-4579847