We are an active manager and prefer to own individual securities in investment portfolios. The investment process includes a “top-down” (asset allocation) and “bottom-up” (security selection) fundamental approach to portfolio management.
Each investor is unique. Establishing the appropriate mix of asset class exposures is the result of a thoughtful Investment Policy Statement (IPS) process. Our portfolio managers (PM) are highly credentialed and adept at executing this critical process with each investor.
The needs and goals of most investors require portfolio strategy to consider investments that appropriately source liquidity, generate growth, and provide stability. The firm manages a set of risk profiles that align these objectives with the attributes offered by specific asset classes. Diversifying the allocation of capital across asset classes and among high quality securities, provides the greatest opportunity to reduce downside risk and enhance risk-adjusted returns.
Security selection is a research intense process focused on identifying strong company fundamentals and attractive valuations. Our discovery, selection and monitoring of a security includes the assessment of Environmental, Social and Governance (ESG) risk factors. We believe that viewing a company through an ESG lens increases our understanding of the investment opportunity and the set of risks that are not as easily identified through traditional fundamental analysis. Further, assessing the ESG risk exposures that may be present within an aggregate portfolio of stocks and/or bonds provides an opportunity to mitigate event risk associated with key issue pillars that are difficult to illuminate with common portfolio measurement tools.
Our active management style is within the context of being an “investor”, we are not “traders”. The investment process identifies opportunities that we hope to hold and profit from for years into the future. Security selection emphasizes long-term fundamentals, but not exclusively, as we believe that valuation matters. We must manage the risk of a security that deviates too far from our view of fair value, removing capital from securities that underperform our expectations or that appreciate beyond reason.
We appreciate that portfolio turnover may lead to tax consequences for certain investors. Our portfolios are managed with a tax sensitivity that balances the after-tax return of an investment with the risk of capital erosion and relative opportunity cost. Tax expectations are defined with each investor and communicated proactively.
Continue reading: Allocation to Stocks / Allocation to Bonds / Allocation to Alternatives / Environmental, Social & Governance (ESG)