ADDING VALUE
WE ATTEMPT TO ADD VALUE FOUR WAYS
1. Getting the basic stocks/bonds/cash allocation right
Studies show this basic allocation accounts for more than 80% of the results of
an investment portfolio. In parallel with strategic asset allocation, we
monitor domestic and international economies and their political environments
to assist in developing a scenario of the financial future. This scenario
serves as our "road map" for decision making, but we recognize
that actual financial developments may vary widely from those expected.
These variances at times will dictate asset allocation adjustments on either
side of the longer term strategic allocation.
2. Diversifying classes and styles within equities and maturities
within bonds.
In equities, different classes (large vs. small companies)
and different manage ment styles (value vs. growth) cycle differently from
each other. Mixing together in a portfolio can dampen the volatility of
the portfolio vs. the market.
In high quality bonds, the number of years to maturity influences the
sensitivity to changes in interest rates. To protect values, maturities
should be shortened when interest rates are rising. Similarly, when interest
rates are declining there may be opportunities to add value by lengthening
maturities.
3. Using "Low Risk" equity funds
We attempt to identify and use funds that have had smaller downside
moves than the market but which may move up, to a degree, with the market.
The greater use of these funds at times when market relative valuations
appear to be at high levels may add value.
4. Identifying the better than average fund managers.
It is important to use experienced managers with long histories of consistently
good performance. Then, when the market and the portfolio are down (as
they surely will be), we and our clients have no reason to question the
position or the competence of the fund management. This lessens the likelihood
that a client may want to sell out of equities when prices are low and
increases client willingness to add money at the then lower prices. The
use of no-load mutual funds allows us to access those better managers without
having to meet the minimums they set for separate account management.
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