Investment Philosophy

 Price Matters

There is really only one rule that works in investing: buying low and selling high garners positive returns. Knowing the price of an asset class relative to its historical trends helps to determine the future price of that asset class. In the end, one can only achieve an average rate of return if one starts at an average price. By focusing on asset classes that are poised to benefit from (as opposed to being hurt by) reversion to the mean, we strive to position clients for future success. Thus, we believe that where one starts is a key determinant of where one ends up.

 

There Is No Value Premium

While we believe that price matters, we do not agree with an industry misconception that there exists a value premium, which implies that the value style is a fundamentally better investment than growth. In the end, the value style is not always undervalued relative to growth. Thus, our price matters belief drives our process to focus on the style, value or growth, which has the best potential for future success. Additionally, history shows that the key differential in the total return between value and growth has been the yield spread (difference in dividends); however, this differential has been on the decline. We believe that allocations between value and growth should not be predicated on an imbedded value premium, but rather which offers the better chance for future success.

 

There Is No Small Cap Premium

Similar to the value premium argument, has a misguided belief that small cap stocks offer a return premium over large cap stocks. History of the industry shows that small and large company stocks are both attractive, but neither offers a consistent return premium over the other. Thus, we believe that allocations between different market caps should not be based on an implied premium, but rather on which offers the better future investment opportunity based on your goals.

 

There Is Neither an International Premium nor International Discount

With continued globalization, some of the inherent risk exposure and return benefits historically present in international investing are becoming more negligible. Therefore, international investing should be viewed as another option in the asset allocation puzzle — on par with other domestic equity investments. We believe that there is not an inherent premium or discount in international investing.

 

Implementation Matters

There are three levels of asset allocation: strategic asset allocation, tactical asset allocation, and implementation. The best strategic asset allocation or tactical asset allocation is irrelevant if one cannot invest to take advantage of these opportunities. We believe in creating an asset allocation recommendation, but we must ensure that the resulting strategy can be optimally implemented in client portfolios.

 

More Diversification Is Better Than Less

Though we always position the portfolios to the most attractive asset classes, there is always the risk of being wrong. The best hedge for being wrong is to diversify. We believe allocating assets to more investments than less — if done with consideration to how those investments combine — is prudent.

 

Alternative Strategies Are Not Simply the Remainder

Oftentimes, alternative strategy asset classes are considered appropriate only for extra assets or for periods during which equities appear unattractive. However, alternative strategy asset classes — like their traditional counterparts — serve to increase diversification and potentially boost returns and dampen risk. We believe alternative strategies should be considered equally with all other traditional asset classes, both strategically and tactically, in creating an optimal asset allocation.

 

Each Asset Class Warrants its Own Spotlight

Each asset class being considered for use in our asset allocation models deserves its own set of expected return and risk assumptions. Simply making assumptions for the core asset class and then dividing the consequent allocation to get style or cap allocations is not effective. We believe all asset classes — and their expected risk and return assumptions— are not equal.

 

Cash Also Needs To Be Managed

Cash is an important component of a portfolio. It can offer downside protection and reduces the need for multiple transactions when you need distributions. However, our goal is to garner long-term returns above those attained by cash. We believe that the right balance of return potential and distribution convenience needs to be weighed at all times when establishing the strategic and tactical weights to cash.

 

Asset Allocation Is More Than Changing Asset Class Weights

Asset allocation could simply be viewed as moving from one asset class to another, within the same investment class — stocks, bonds, alternative strategies, cash. However, effective asset allocation includes changing the allocation between stocks, bonds, alternative strategies, and cash in order to position the portfolio in the most attractive asset and investment classes. We believe the best advice comes from moving between these different investment classes, both strategically and tactically, as necessary.

 

*No strategy assures success or protects against loss.

*There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.