Portfolio Construction
Our Approach
Our approach to portfolio construction is what makes our investment service special. Our client relationships are deeper and more open that most firms, which results in the Personalization of the client’s portfolio. We design customized growth and income portfolios foundationally built around the client’s goals and needs. The allocations between asset classes will be directly informed by the client.
We believe direct ownership of stocks and bonds is the best way to provide diversification, reduce fees and enhance transparency. Our clients benefit from clearly seeing what they own, what it’s worth and how each investment fits into their broader portfolio. These direct investments constitute the “Core Holdings” of our clients’ portfolios. With that said we see value in having a specialized investment manager for certain types of investments and in that case, we will add a low fee mutual fund (or ETF) to complement the “Core Holdings”.
Some firms are pure asset allocators and simply hire outside mutual fund managers to make the investments. This creates layers of fees, which are often hidden and hard to discern. It’s even harder for the client to analyze what they own since each fund can have hundreds of investments. Conversely some investment advisors don’t use any mutual funds or ETF’s, which limits their diversification or exposure to unique investment opportunities. Our view is that both approaches have merit, and that is why we try to blend the best of both strategies. With Transparency foundational to our approach, we let you know that 75% of our portfolios are direct ownership of stocks, but we also believe that the broad diversification achieved through mutual funds and ETF’s is sometimes the most efficient way to gain exposure to some markets.
Our portfolio construction starts with a comprehensive review of opportunities ranging from small to large capitalization equities and bonds and identifying which best reflect the client’s goals and priorities. This becomes the Core of the portfolio and usually includes 15 to 20 individual stock and bond positions.
The “Core” is the all-weather part of the portfolio and we complement that with a variety of investments themes dictated by the unique goals and interests of each client.
We build the “Core” portfolio from the Bottom up by identifying individual companies or ETF’s that have compelling businesses, making sure that we are well diversified so that the portfolios can do well regardless of the macro-economic environment. There are many reasons why a stock might trade below its intrinsic value, and the “Core” will be a blend of investment positions with diverse drivers of growth. One investment may be a turnaround play where the company is emerging from a challenging period and the stock price has yet to reflect the improvements. Another position may have strong revenue growth not yet recognized by Wall Street. We also love the “slow and steady” dividend payers. The various positions create diversification in business models, business sectors, and growth trajectories. The goal for your “Core” is to have broad-based exposures to the economy that can do well over the 3 to 5 years regardless of the ups and downs of the macro-economic outlook.
With the “Core” in place we shift from the bottom-up stock selection and layer on a more Thematic approach, which incorporates tactical ideas for gaining exposure to specific investment themes. For example, we see cybersecurity as a large growth industry and thus we add a cybersecurity stock position. Diabetes, green technology, emerging markets, rising interest rates are other examples of currently prevailing opportunities. This methodology provides exposure to new industries, geographies, and investment ideas.