Interview of the Month with Michala Janatová, Independent Investment Consultant

What are the most important attributes regarding the financial planning within the individual investment portfolios’ creation and management?

For me, the most important attribute is to know your customer really well. To have filled in investment questionnaire is not enough. Financial planner has to be not just a good analyst but also a good psychologist. What is also important is the education and setting up expectations well.

What are the key distinctions between the strategic asset allocation and the tactical asset allocation of individual investment portfolios?

Strategic asset allocation is a base for the long-term investment strategy and doesn't change a lot. It helps us set up a long-term expected return and volatility of the portfolio and serves us as a long-term strategic plan. It changes only in case of important changes in client’s life or personal preferences. On the other hand, tactical asset allocation tunes up the strategic allocation for the short-term market movements. I usually reconsider the tactical allocation once a year. The role of tactical asset allocation is to use market movements to improve the short term position of the whole investment portfolio. To avoid a big deviation from long-term expectations, the difference between the strategic and tactical allocation must not be huge. In my methodology, the difference usually does not exceed +-10 %.

Why is the diversification of individual investment portfolios so much important?

With a high concentration, you can reach much better returns than with s good diversification. But the probability of reaching the expected returns is much lower. With a good diversification, you can reach a quite decent probability of reaching the expected returns. And this is very important for financial planning. Most of my clients prefer wealth protection over return maximization and that's why a good diversification is for me the key to be successful in meeting clients’ expectations.  

Do you think that the traditional 60/40 portfolios, 60% equities and 40% bonds, are still relevant for individual investors? Aren’t at least some changes to this basic concept of portfolio creation essential at the end of 2024?

I'm not fun of presenting one asset allocation as a general solution. The allocation between equities, bonds and other asset classes has to be tailor made for each individual. And I'm sure that there are some individuals for whom this allocation is suitable. On the other hand we had a period a few years ago, where the bond part of the portfolio was not suitable for almost anybody and it was very hard to find a substitute for them. But it has changed with rising interest rates and nowadays the old principles of portfolio creation are valid again.

What are the key parts of the core strategic asset allocation that you recommend to your clients with long-term investment horizons at the moment?

I have six basic asset classes which I use for the strategic asset allocation that doesn't change at the moment. These asset classes are: cash, investment-grade bonds, non-investment grade bonds (high-yields), equities, real estate and alternative strategies. The portion of each asset class of the portfolio differs according to clients goals, their investment horizons, their attitude to risk and their knowledge and experience. Median client has approximately 45 % in equities, 35 % in investment-grade bonds and the rest in other asset classes.

What do you think about US equities in general and equities from the US IT sector in particular? Aren’t they somehow overvalued at the moment?

Compared to other regions and sectors they seem really overvalued. I'm a fan of statistics so I believe we can expect what is called a reversion to mean. The problem is that nobody knows how long it takes to get back to mean, and so I do not underweight US equities a lot and hold the regional and sector breakdown according to current market capitalization.

What do you think about emerging market equities which seem to be way much cheaper than the US equities right now?

In accordance with my previous response, I see the emerging market equities as undervalued. But there are also reasons for it. Question is whether these reasons are properly priced in or not. That's again what we do not know. For me, avoiding emerging markets equities in the portfolio would be a mistake but making a huge bets on this market can bring unpleasant surprises as well.

As regards individual investors will long-term investment horizons, how do you reflect the significant current global macro-economic developments, such as the rising geopolitical uncertainty, in their investment portfolios?

The world is full of uncertainties. They have always been here. Compared to history, the current situation is not exceptional. We had a world war and the capital markets still worked and survived. So I do not think there is a necessity to do things differently. From the Czech investor point of view I only emphasize the importance of global diversification and home country bias avoidance.

What do you think about gold and Bitcoin as portfolio diversifiers? Shouldn’t individual investors allocate at least several percentage points of their investment portfolios to these alternative asset classes?

It depends on the client's preferences. I think that it is good to have some alternative investments in the portfolio, but I do not see it as a must. And there are also other possibilities except these two mentioned how to create an alternative part of the portfolio. If having a gold brick buried in the garden or having a hardware wallet with a few satoshi will allow you to sleep better, why not but do not put more than 5 % into your portfolio. It is my usual advice. I personally have no alternative investments in my portfolio.

What do you think about the corporate bonds market in the Czech Republic?

It is full of shit and scams. I do not think any individual investor should take this market into account. Of course there are few good investments but they are usually picked by institutional investors immediately. So I do not include them in the portfolio (except the small portion which is purchased by bond funds in which I invest).

How would you evaluate the current state of the financial advisors market in the Czech Republic? Could you elaborate on the major recent developments?

Even though it is getting better a little bit, I'm not very optimistic. Bad experience with financial advisors causes investors to believe more in their friends or influencers or are trying to manage their portfolios by themselves which leads to disillusionment from investments. On the other hand I know many advisors personally, who became perfect professionals and are hardly working on it. To my delight, I also see an increasing number of direct paid advisors and also the demand for direct paid advisors rises sharply. People are more educated and avoiding the conflict of interest is something which is something they are willing to pay for.

BIO

Almost her entire professional life has been devoted to investments. Within the ČSOB group, she went through all phases of the investment process. During her work at ČSOB, she also received the prestigious international title of CFA (Chartered Financial Analyst). At the beginning of 2018, she decided to use her knowledge and experience for her own business and started working as a freelance investment consultant. Her goal is to contribute to improving the quality and thus the reputation of financial consulting in the Czech Republic. In addition, she also writes articles and uploads interviews for her investment blog and has her own YouTube channel and podcast called Jamicast. Since 2019, she has been active in the Association of Financial Advisors of the Czech Republic, where she focuses primarily on the field of education and also on the promotion and development of paid financial consulting. In 2024 she became a major owner of the Jamico Investment Office s.r.o, a small multifamily office focusing on business families with assets between 10 and 100 mio. CZK.