Our Investment Philosophy
At our core, we’re value investors. We believe that
over a full market cycle, assets revert to the mean.
What’s expensive will become cheap, and what’s cheap will become expensive. We attempt to buy more of what’s cheap, and less of what’s expensive. We are risk-conscious investors, believing that capital preservation is as important as capital appreciation. When traditional asset classes get expensive, we’re likely to overweight diversifying alternative asset classes and raise cash. We are fee conscious, attempting to build a fully diversified portfolio while keeping the investment manager fees as low as possible. We are big proponents of income, tending to look for interest & dividend producing investments, instead of relying on capital appreciation alone.
Our Portfolios Typically Have Three Sleeves
The “Core” Sleeve
Invests in traditional long-only asset classes, i.e. – Taxable & Municipal Bonds, and U.S. & Non-U.S. stocks. In other words, the types of holdings you would find in this sleeve are the types of holdings you would see in a traditional 60/40 portfolio. The Core sleeve allocation range is typically 20-80%.
The “Hedged” Sleeve
Reduces portfolio risk by allocating to diversifying liquid alternative investments. For example, Nontraditional & Absolute Return Bond holdings are used to diversify the Core Bond & Currency allocation. Long/Short Equity, Market Neutral, Event Driven & Volatility holdings are used to diversify the Core Stock allocation. Managed Futures holdings are used to diversify Stock, Bond, Currency and Commodity holdings. The Hedged sleeve allocation range is typically 10-50%.
The “Tactical” Sleeve
Invests in a range of asset classes we currently find attractive, including illiquid or semi-illiquid holdings (i.e. – Private Real Estate). For example, while our Core sleeve might include an allocation to Intermediate-Term taxable bonds, our Tactical sleeve might include an allocation to High-Yield Bonds, and while our Core International holding may be broadly diversified across the globe, our Tactical sleeve might include an allocation to a specific country we find attractive. While the holdings in the Core sleeve are typically held over a full market cycle, the investments in the Tactical sleeve typically have a shorter time horizon, usually ranging from 1 month to 3 years. The Tactical sleeve allocation range is 10-30%.
Our global macro analysis incorporates the opportunity sets and the associated risks of all the above asset classes, and drives our allocation to each sleeve, and further – into the underlying investments within the sleeves. We stress-test our portfolios over 80+ market stress scenarios, which helps to make sure that the portfolio is truly diversified, while providing a baseline expectation of the imbedded tail risks. Our portfolios use a blend of active and passive holdings. We primary use mutual funds, ETFs, and CEFs to express our market views. We incorporate asset location & tax management practices into our investment management process.