Our Unique Research Process
Economic & Market Outlook
The purpose of our Outlook process is to attempt to find mispricings in the markets that can be exploited. We meet at least once per month to discuss our Outlook and decide what criteria to use when reviewing your investments. There are two categories that we use: Broad and Specific.
Broad — this determines where we would like to be at a given time within each of your asset allocation ranges. For example, the more optimistic we are on stocks, the closer to the top of your stock range that we would like to be.
Specific — we typically will have at least a couple of themes within each asset class that we seek to take advantage of. We may feel that long term US government bonds are more attractive than corporate bonds. Or we may feel that foreign stocks are more attractive than US stocks. We constantly review these themes in light of market conditions as we do not believe that we should be rigid in our thinking- no investment is a great investment at any price.
Since our primary focus is our clients’ personal situations, it is important to appropriately leverage our research resources. This makes mutual funds an attractive type of security, as we can leverage our Secular Outlook themes by choosing the appropriate styles of funds. The fund managers will then keep track of all the individual holdings within the fund, which is obviously very time intensive.
We have also identified characteristics common to above average fund managers, which can contribute additional value. Some of these characteristics are:
- Independence — It is not surprising that mutual fund families of the large brokerage and bank companies have less than inspiring performance records.
- Reasonable costs — We do believe that the best managers typically require better than average pay, though at the same time the highest cost funds typically are poor performing.
- Focus on investing not marketing — Great performance and heavy marketing do not typically go hand in hand. We particularly loathe situations where heavy marketing follows a period of great performance as a deluge of new investors can actually hamper a manager’s ability to continue doing well.
There are times when we use investments other than mutual funds, particularly for cash alternatives, and when someone holds a portfolio of stocks that would incur significant taxes if they were sold. There are also times when we will use index funds, typically when we do not feel there is enough inefficiency in a given area for an active manager to exploit.