Consistency is key to any solid investment process. We have developed an active, efficient and transparent process that blends macro, longer term thinking with potential nearer-term market scenarios.

This hybrid process allows longer term themes to play out while at the same time providing flexibility and agility to adapt the portfolio to nearer term events.


Step 1: Forming a Macro View

At the beginning of each year, we form a macro outlook and allocation based on developing global themes using an amalgamation of multiple data and research sources. This macro view helps us look beyond the near-term horizon to help determine the conditions for effective portfolio construction. We use this step to form our broad asset allocation within client portfolios.


Step 2: Shaping Portfolio Allocations

Putting a portfolio together is much like following a recipe; creating the most flavorful meal comes down to sourcing the right "ingredients." From our macro view, we drill down and identify specific sub assets and strategies that will best serve our clients. Generally, we separate the sub assets and strategies into either a “core” long-term camp, or a “tactical” shorter-term camp.  

Here’s how the core vs. tactical strategy works: Let’s say that based on our first step, we find the economic conditions are generally attractive for stocks yet better for some types of stocks than others.  Using our core vs. tactical approach, we can maintain a core holding, such as an broad, index-based instrument, while at the same time incorporating a complementary country-, sector- or factor- based strategy that we believe will best round out our client portfolios. The core holdings can be left unfettered with for extended times, thus keeping trading and tax efficiency at high levels for our clients. Tactical holdings can be adjusted one position at a time, at any time without disrupting the overall portfolio. We replicate this process on an ongoing basis within all major asset classes.

Within our practice, we utilize a preferred product hierarchy as part of our portfolio construction. Since we like using diversified and lower cost index tracking investments to construct our client portfolios, the first question we tend to ask is is whether a specific piece (often called a “mandate” in finance speak) of a portfolio can be best satisfied through such index tracking instruments. If so, great; box checked. If we can’t find a proper fit, then we expand our search to include active and sometimes algorithmic (computerized active management) vehicles to fill the void.


Step 3: Stress-Testing the “What Ifs.”

Once our portfolio allocations are mapped out, we use quantitative tools to stress test our strategies to help identify potential weak links or missed opportunities in our thinking. Stress testing is a way of determining both the probability of events and the effects of such events on our client’s portfolio outcomes. Through stress testing, we believe we can better shape our client portfolios to be more adaptive to market factors. For example, we may know on paper that rising energy prices tend to affect consumer car buying habits and/or the price of airline tickets, yet is it possible rising energy prices affect inflation and interest rates, thus affecting everything from home loans to bond values? You bet.  Stress testing is a way for us to tell how tightly correlated different holdings are within portfolios, empowering us to build more efficient and diversified portfolios for our clients. 


Step 4: Tactical Tweaks

Though we advocate a longer-term perspective within our client portfolios, we have created ample wiggle room to better adapt to near-term market expectations and events. We isolate positions that we consider more tactical and nearer term in nature. Tactical tweaks could be the adjustment of specific country, sector or active strategies within equities, along with adjustments to duration, region, type and credit quality within bonds, and volatility hedges where appropriate. This allows us to adjust at more of a position level when needed, while leaving the rest of the portfolio alone. This approach affords a more cost- and tax-efficient process for our clients by allowing a more surgical adjustment when appropriate.


Step 5: Semi-Annual Recalibrations

Roughly six months into each year, we go back to step 1, looking to see if our macro and/or thematic views still hold water. This review often provides us an opportunity to recalibrate client portfolios where needed.