We believe that clients must set their own goals. It is our responsibility to educate them in the process and to assist them in defining, quantifying, and prioritising their goals.
We believe that clients need total return, not dividends or interest. The traditional concept of an ‘income’ portfolio is archaic and places unnecessary and inappropriate restrictions on portfolio design.
We believe that ‘conservative’ assumptions are a dangerous myth. Return requirements should be based on real rates of return. An investment policy should not be prepared based on a client’s unrealistic expectations. If necessary, we will refuse the engagement.
We believe that a client’s risk tolerance is a significant constraint in the wealth management process. Success can be measured by our clients’ ability to sleep well during turbulent markets.
We believe that tax considerations must be considered. However, the goal of tax planning should be to maximize after-tax returns, not to minimize taxes. Neither reported turnover nor holding period calculated from reported turnover is a useful measure of tax efficiency.
We believe in the use of appropriate mathematical measures of risk and return. The primary measure of risk should be standard deviation. The primary measure of risk adjusted return is the Sharpe Ratio. Duration, not maturity, is the appropriate measure of a bond’s exposure to interest rate risk (within narrow rate changes).
We reject the use of classic technical analysis and market timing. “It is not timing the market, but time spent in the market”.
We believe in the conclusion of research that, over time, value equity portfolios should provide superior performance. However, we also believe that eliminating growth allocations will result in interim divergence from the broad markets that our clients would find unacceptable. In a changing investment environment, style agnostic portfolios might have the adjustment advantage.
We believe that the choice between active and passive management is not either/or. We use both. In general, we believe that our value portfolios should be passively managed and our growth portfolios actively managed.
We believe that the portfolio policy is a significant determinant of long-term portfolio performance. Because we believe in the overriding importance of the strategic allocation, we reject managers who do not have clearly defined philosophies or who diverge from their stated policies. Because we do not believe in market timing, we reject sector managers.
We believe in maintaining a strategic allocation and only infrequently revise that allocation. We believe in rebalancing to the strategic allocation. However, the influence of taxes and transaction costs leads us to conclude that contingent rebalancing with fairly wide bands is the most appropriate solution.
We believe that the relative risk of increasing equity exposure decreases as the time horizon of the goal increases.
We believe that professional fund managers will generate results far superior to a client’s or wealth manager’s direct security selection and management. Multi management is preferred, not one management house can be expert in all fields/styles of investment. We believe in the ’best of breed’ principle – seeking out those managers within investment management companies who outperform consistently over the long term.
We believe that managers should be selected and evaluated based on their philosophies, processes and people. Once selected, a manager should be allowed periods of poor performance, if he remains consistent with his philosophy and process. He or she should be replaced immediately if their implementation strays significantly from the stated philosophy or process.
Evaluation of managers should entail a detailed review of all available pertinent information, including both fundamental qualitative and return factor analyses. However, the ultimate decision to hire or fire should be based on fundamental data. Performance measurement should be against appropriate benchmarks, not broad market indices.
We believe that there should be regular review of a client’s situation to determine if he is continuing to move in the direction of achieving his goals. This includes revisions in strategic allocations as a result of revised assumptions or changing client circumstances or goals. We should continue to educate our clients, always remaining sensitive to the volatility of each one’s expectations. Our responsibility is to assure that our client ‘stays the course’ and does so with a minimum of emotional pain. The focus should always be the client and the achievement of his goals, not the performance of the portfolio.
