Total return approach

Few basic things, I want to make sure I have them right,

Total Return approach: In private wealth management CFA book describes as “capital appreciation and capital preservation” pg 210, for Institutional investment CFA book describes as having “income and growth”. Are these really same definitions of total return approach?

Balanced approach: having income and growth perspective. If this is correct then there isnt much difference b/w this and total return approach.

Please, can someone clarify this?

I think the balanced approach emphasizes low risk , while the total return approach tries to maximize returns. But essentially neither one cares if they use income or capital gains togenerate the return.

As someone said , if you need a dividend ( or cash ) , you can make one yourself by selling a portion of stock.

And companies do it too by buying their own shares back rather than paying dividends.

total return approach: return sources of both capital appreciatation as well as income (divs/coupons/etc). I think the PWM quote is not something I would rely on, however the Instl Inv is more accurate description.

Balanced approach: this is an asset allocation issue, combining different assets that provide dif characteristics (which in many cases include assets aimed for growth and those aimed more for income).

CFAI seems to usually make the point that investors should focus on total return, a balanced approach is just a way to have assets that provide both parts of a total return. Unlike a bunch of growth stocks with no dividends, therefore the total return is based entirely on cap appreciation.

It’s total return approach versus yield approach depending on liquidity needs.

Posted the comment by mistake in a two year old thread…

It used to be, before the Prudent Investor Rule, that a lot of institutions were only allowed to use income to fund liabilities. It was an income return approach, which obviously shifted the focus to bonds and did not provide much in terms of diversification or real growth. That has evolved and now they really like to use that buzzword of everything being part of a “total return approach”.

The only time in the curriculum that they mention total return approach is less appropriate is for Life Insurance ALM portfolios.