Our Portfolio Management Approach

•    We use a variant of Modern Portfolio Theory. Modern Portfolio Theory’s efficacy has been well demonstrated over the years---as has its weaknesses. We use an enhanced version of the theory in an attempt to shore up its weaknesses.

•    Broad diversification by asset class and within asset class. We consider any asset class that adds value to a portfolio. Your portfolio may include as many as 14 asset classes including, domestic equity, international equity and bonds, real estate, natural resources, market neutral, domestic bonds, convertible bonds, etc.

•    Alternative asset classes including Market Neutral, Long/Short, Convertible and Merger Arbitrage, are an important part of our client’s portfolios. We have also begun using a new strategy that incorporates volatility futures for the S&P 500 index.

•    We lean towards value; studies consistency show that this approach offers less volatility but with the same return as growth.

•    We use a combination of passive and active approaches. We focus on choosing active managers that perform well in bad markets. We use a statistical process to select active managers whose performance reflects skill rather than luck.

•    We are concerned with cost. We have access to lower cost investment options that are only available to institutional investors. You may experience savings as great as .5% annually.

•    We rebalance on an opportunistic basis, capturing gains and maintaining the profile of your portfolio. Studies show this can add 0.5% to your annual return.

•    We avoid illiquid or overly risky investment vehicles.

•    Tax efficiency: we aim to minimize tax events through property management of your portfolio. Studies show that this can increase your net return 0.3% annually.

•    Cost efficient fixed income management: Generally we use individual bonds and purchase them from firms that provide institutional class pricing. We closely manage risk and typically ladder the bonds and hold to maturity—minimizing interest rate risk.

We are very concerned with “Downside” Capture

Why is it so important to lower downside risk? The graph below shows why:

The red line shows what happens to an investor that experiences a 50% loss in year one and then earns 10% annually. The blue line shows what happens to an investor that plods along at a 5% return annually. It takes the portfolio represented by the red line over 18 years to catch up to the one represented by the blue line.