Security
Selection
Process
Our selection process differs based on the asset class and type of security. The types of securities we recommend that our clients include in their portfolios are typically driven by such factors as account size, account characteristics, client restrictions, and the need to defer taxes.
Typically we will not introduce individual stocks to the portfolio unless the account has a value in excess of $150,000. We believe that below this amount, most clients are better served using mutual funds in order to achieve a sufficient level of diversification and low expense ratios.
Individual Stocks
We manage both a Large Cap Growth Portfolio and a Large Cap Value Portfolio. Each of these strategies has a history of above-market returns with below-market risk.
Our portfolios are well-diversified across all industry sectors. Our analysis of the current economic cycle and where we think the economy is trending will cause us to overweight certain market sectors and underweight others.
We then select those stocks that we feel will offer the best chance for future growth within each market sector. Our portfolios typically have between 25 and 30 stocks with a turnover ratio of around 30%. We screen a database of stocks based on a variety of fundamental ratios such as debt to equity, price to earnings, and forward earnings per share growth rates.
We are looking for companies that we believe will experience above-average earnings growth that can be purchased at or below-average price-to-earnings ratios.
We then assess the management of those companies and how they are compensated to make sure their interests are aligned with those of the shareholders.
We will typically sell client positions if the earnings growth rates significantly decline, the price-to-earnings ratio gets ahead of itself, or there is a significant change in management for no apparent good reason.
Fixed Income
The primary objective of our fixed income strategy is to protect the principal with a competitive yield. We only buy investment-grade bonds for inclusion in our client’s portfolios. We do not actively trade these securities in response to movements in interest rates.
Our strategy is to ladder the maturities of our fixed-income positions over a three-year time span. This enables us to reinvest 33% of the portfolio each year to take advantage of the interest rate environment in effect at that time. We position our maturities with the goal of maximizing the yield based on the fixed-income yield curve.
Global Investments
Over the last several decades, entire industries have left the United States. Many of the products we consume here at home are manufactured and assembled outside of our borders. We believe that it is both necessary and prudent to invest a portion of our client’s portfolios outside of the United States in order to take advantage of the ever-growing and interconnected global economy.
We utilize outside portfolio managers to invest our client’s assets in the form of mutual funds. These institutions possess the research capabilities to assess the many global opportunities we are seeking. We continually monitor their performance against their peers and benchmarks, with the goal of having our clients achieve above-average returns with equal or lower risk.
Real Estate Investment Trusts
Our strategy for participating in real estate is to invest in either exchange-traded real estate investment trusts or, on occasion, private placements (if the client meets certain criteria). Real estate can be used as a hedge when equity markets decline.
Mutual Funds
The mutual funds we select must meet various criteria. This includes any or all of the following: no-load or load-waived funds, below-average expense ratios, history of outperforming peers, and most importantly, the current management must be the same people who were responsible for achieving the returns we are analyzing.