Investment Process
Asset Allocation
There are many different ways to allocate assets in an investment portfolio. Short-term market timing is one method. Identifying longer-term valuation discrepancies is another. Still others use technical analysis to time shifts from one asset class to another.
There are many approaches, but no ONE “right way” to allocate assets in an investment portfolio.
Our process incorporates risk management techniques with active asset allocation and manager selection based on each client’s specific needs and objectives.
There are three primary steps to our asset allocation for our five model portfolio types:
- A neutral allocation is established for each portfolio type.
- We shift our asset allocation away from neutral only when there are "fat-pitch" opportunities:
- one asset class is extremely undervalued relative to competing asset classes.
- cyclical or other factors don't significantly detract from the valuation story.
- we believe long-term trends will have a major impact in defining the upcoming investment climate.
- scenario analysis is used to test the portfolio's exposure to various downside risks.
Fund and Manager Selection
Investors and fund professionals alike tend to rely on past performance in their fund selection process. The problem is that past performance is of little use in identifying funds or managers who will deliver superior future performance relative to their peer group. Numerous studies have failed to unearth a significant positive correlation between past relative performance and future relative performance. The only correlation found has been that managers with very bad returns consistently continue to produce poor results.
The fact is, track records are not predictive. But this does not mean superior future performers can’t be identified. It simply means that the track record alone does not provide sufficient information to do so. Does anyone really expect that investment success should be as simple as projecting the past into the future?
Our approach to fund research recognizes that past performance is useful only as a tool for screening funds that may be worthy of further research. Value added comes not from evaluating performance, but from identifying why a fund performed well, determining if the portfolio management team has an identifiable edge and assessing whether that edge is sustainable.