Investment Management
Our investment process is driven by four principles. First, we believe asset allocation will be the primary driver of long-term performance. Second, we believe passive management is appropriate for most asset classes, but in less efficient markets, skilled managers may achieve long-term outperformance. Third, we believe rebalancing periodically will keep a portfolio aligned to our client's risk tolerance and financial goals. And lastly, our goal is to reduce our client's tax burden by investing in tax-efficient vehicles and minimizing transactions that result in capital gains.
1
Asset Allocation
Each asset class plays an important role in our portfolio construction process. While the risk and return characteristics of asset classes are important in isolation, understanding the correlation and interaction between them help us to create diversified portfolios that are resilient in different market environments. We seek to strike a balance when building our portfolios, which we believe will help our clients achieve better outcomes. Timing the market is extraordinarily difficult and can result in excessive trading costs, opportunity costs, and ultimately underperformance.
2
Manager Selection
Although we are not making frequent changes to our asset allocation, we do believe there are select opportunities to add incremental returns. We are primarily passive investors, however, some markets around the world do not adjust as quickly to new information, which creates opportunities to take advantage of asset mispricing. We seek to exploit these mispricings by utilizing managers who have shown the ability to add value over the long-term.
3
Rebalancing
With some asset classes performing better than others, a portfolio will naturally drift out of alignment over the course of the year. Significant drift can result in a portfolio that no longer matches an investor's risk profile. To ensure this does not happen, when appropriate, we rebalance back to the target allocation. Tax consequences (for taxable accounts) are always a consideration in the decision to rebalance.
4
Tax-Efficiency
For taxable accounts, we primarily invest using Exchange-Traded Funds (ETFs). ETFs are a more tax-efficient vehicle than mutual funds due to how the fund operates. Where opportunities exist, we may take an opportunity to harvest losses to offset current or future capital gains.