We offer a disciplined, unemotional, and highly diversified investment approach that offers objective advice rather than financial products to buy.
We call it asset class investing.
It is based on the science of investing that cuts through the noise and confusion by focusing on what really drives investment return, helps reduce volatility, and simplifies the investment process. The core concepts of asset class investing are not new. They are time-tested and supported by decades of empirical research.
A cornerstone concept of modern economics is that a free and competitive market system is the most efficient way to allocate resources. Securities markets throughout the world have a history of rewarding investors for the capital they supply. Companies compete for investment capital, and millions of investors compete with each other to find the most attractive returns.
This competition quickly drives prices to fair value, ensuring that no investor can expect greater returns without taking greater risk. The result is an efficient market system with prices that incorporate all available information as well as future expectations, and are the best approximation of fair value.
We attempt to capture market rates of return by using institutional mutual funds that invest in thousands of securities in selected asset classes. These funds exclude financially distressed and bankrupt companies as well as illiquid securities and Initial Public Offerings. They also minimize trading costs through a patient and flexible trading approach that does not mandate index tracking like traditional index funds and ETFs.
We believe that investment returns are primarily determined by risk. We help our clients manage their portfolio’s risk and return profile by allocating money to asset classes with risk factors that have higher expected returns.
The equity risk factors we target in our portfolios include value, size, and profitability. We tilt portfolios to these risk factors to adjust risk based on a client’s risk tolerance, financial goals and other considerations.
We combine the equity portion of a portfolio with short term fixed income to further manage risk and create a balanced portfolio.
Diversification is much more than the idea of not putting all your eggs in one basket. An effectively diversified portfolio is constructed of securities, or preferably entire asset classes, that do not share common risk factors and therefore tend not move together. It has components that may zig while others zag,creating more consistent, less volatile returns that compounds money at a greater rate than a more volatile portfolio with the same average return.
To accomplish this we combine asset classes in a portfolio that have dissimilar return patterns. We invest globally across thousands of securities to minimize single-security risk and to capture the diversification benefits of different country markets and currencies. We also combine equities with high-quality, short-term fixed income securities that have a low correlation with stocks.
We use a comprehensive tax management approach to help minimize tax exposure for our clients. Our goal is to maximize after-tax returns while maintaining a client’s desired risk level.
To start, we consider the tax status of accounts when choosing where to locate investments. Next, we use tax-managed funds to minimize dividend and capital gain distributions, and combine accounts of differing tax status into a portfolio to allow rebalancing in tax-deferred accounts to minimize capital gain recognition.
We also seek opportunities to generate tax losses for clients who would benefit from them and provide full tax-lot accounting for easy tax preparation.
Over time, a portfolio will drift from its initial asset allocation due to market fluctuations, changing the portfolio’s risk and return characteristics. Rebalancing brings the portfolio back closer to its original targets, helping to retain its risk profile by buying those asset classes that are underweight and selling those that are overweight. Rebalancing may also increase returns by taking advantage of market fluctuations over time.
We review portfolios every six weeks for possible rebalancing but only place trades when there has been sufficient market movement away from targets. We also place rebalancing trades within tax-deferred accounts when we can to reduce capital gains exposure and rebalance with newly deposited funds to reduce taxes and trading costs. With taxable accounts, we rebalance half way back to targets to reduce realized capital gains.