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Investment Manager Selection
Posted in Wealth Management Solutions | May 2011 | Comments (0)
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You can’t make a decision without knowing all the facts. As Advisors, we can either make all the investment decisions ourselves or utilize other managers that excel in their respective areas. Reality is that one person alone cannot possibly decide to buy, sell or hold with a 100% success rate across every position. At Beacon, we believe that portfolio management is dynamic and thus invest across multiple managers, each with a proven historical track record of success and depth of understanding in the particular asset class they manage. Our firm’s number one client objective has always been that of principal protection and preservation; however, we continually strive to enhance portfolio performance utilizing a proactive management selection process.
Generally speaking, our investment managers have expertise in specific markets, asset classes, sectors, geographies and strategies. We conduct proper due diligence and follow a systematic process for manager selection that is both qualitative and quantitative. Some of the factors we consider include investment philosophy, use of fiduciary best practices, alignment of client objectives, approach to risk and calculation of past performance over a significant period of time. The firm’s selection allows Beacon not just to pick great managers; but it also provides a guideline for the dismissal of a manager if they cannot sustain performance as compared to the appropriate benchmark for that asset class.
We characterize the six major areas of assets, as follows.
1. Equities: This is the stock portion of the portfolio. We break this category down to include value and growth as well as foreign, emerging markets and the size of stocks either large or small.
2. Bonds: This class will include high quality, high yield, and convertible bonds as well as foreign bond, and emerging market bonds.
3. Commodities: Commodities includes grains, gold, silver, oil and natural gas. Clearly it has become an asset class that deserves specific attention and allocation.
4. Alternatives: This tactical portion of a client portfolio is a dynamic asset class built on domestic and global macroeconomic conditions and is designed to capture opportunities in the market.
5. Equivalents: This class is a strategic position that increases or decreases depending on the allocation to equities. When the equity allocation goes down this class will increase in size and vice versa.
6. Cash: All accounts need to have a liquid portion and some clients need more cash than others. In many cases, it is usually in a money market fund.