Investing


Nowhere is our "complex made simple" mind-set more befitting than when it comes to our investment process. We don't rely on a static buy-and-hold (-and-hope) approach, nor do we try to time the market or let knee-jerk reactions dictate how we invest. Instead, we combine traditional asset allocation theories with more proactive and ongoing investment considerations, using our signature core-tactical investment application. Our process is rooted in a sound rules-based and quantitative investment approach that takes emotion out of the investment planning equation. It all begins with the construction of a prudent, low-cost, diversified core that combines traditional equity and fixed income investments. This generally represents the bulk of each client's portfolio. We then augment the core allocation with one or more of our tactical investment strategies. Core investments are generally considered longer-term holdings and reviewed annually for tax-loss harvesting opportunities or cost-lowering substitutions. Meanwhile, tactical investments may make "risk-on" or "risk-off" adjustments based on current market conditions, resulting in greater or reduced overall market exposure. This tactical risk-on/risk-off approach is our signature trading strategy; however, other tactical investments may include specific securities, asset categories, or products that speak to the interests or needs of a particular client. This isn't some antiquated "set-it-and-forget-it" model. It's a collaborative, risk-managed process that combines various methodologies into a single blueprint, all designed to create the potential for incremental long-term investment returns.

 

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Core Equity Allocation

The core equity allocation represents the foundation of stock-related holdings within each client portfolio. The specific amount earmarked to the core equity allocation is based on the investment objectives of each client and is constructed in tandem with the core fixed income allocation of each portfolio. These two sleeves of each portfolio combine to serve as the underpinnings of our portfolio construction process and are invested primarily with low-cost passive investments.  

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Core Fixed Income Allocation

The core fixed income allocation represents the foundation of bond-related holdings within each client portfolio. The specific amount earmarked to the core fixed income allocation is based on the investment objectives of each client and is constructed in tandem with the core equity allocation of each portfolio. Again, the core equity and core fixed income allocations combine to serve as the nucleus of your portfolio and are invested primarily with low-cost passive investments.  

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Tactical Allocation

The tactical sleeve of each portfolio is an ever-changing allocation that is designed to seek incremental performance potential, either by attempting to capitalize on market opportunities or to reduce market exposure during periods of sustained market declines. The amount earmarked to the tactical allocation of each portfolio is calculated on a client-by-client basis and used as a complement to core allocations. Because of the opportunistic nature of this allocation—and based on the investment objectives of each client—the tactical allocation may include a variety of investment types. 


Core Equity Characteristics:

  • Domestic and Foreign Equities
  • Low Cost
  • Primarily Passive 
  • Diversified

Core Fixed Income Characteristics:

  • Domestic and Foreign bonds
  • Low Cost
  • Passive and Active
  • Diversified

Top Tactical Investments:

  • Risk-On Risk-Off (our signature strategy, see below)
  • Managed Volatility
  • Individual Stocks
  • Individual Bonds
  • Dividend Focus
  • Cash Alternatives
  • Socially Responsible (ESG)
  • Real Estate
  • Alternative Investments

Risk-On Risk-Off Explained:

Our signature Risk-On Risk-Off tactical strategy is an objective, rules-based trend-following methodology. Each position within the strategy changes its equity exposure based on three indicators, each of which relates to its own index's 200-day Simple Moving Average (200d SMA). The 200d SMA is a hallmark of technical analysis, as it measures the average closing price over the last 200 days, relative to the current trading price. The relationship between the two figures is meaningful in that it can be used to help determine trend probabilities and, in turn, entry and exit points for overweighting or underweighting a portfolio's total market exposure.  

Equity Indicator 
Depending on each investment with the strategy, its related benchmark index may be the S&P 500, the S&P MidCap 400, the NASDAQ 100, or the S&P Developed Ex-US Large Cap index.  When the related benchmark index closes above its 200d SMA for five consecutive business days, the strategy will have 100% benchmark index exposure.  

Price Signal
When the related benchmark index closes below its 200d SMA for five consecutive business days, the strategy will shift to 50% benchmark index exposure and 50% exposure to 3-month U.S. Treasury bills (50/50).

Trend Signal
When the related benchmark index's 200d SMA closes lower than its value from five business days earlier, the strategy will shift to 100% exposure to 3-month U.S. Treasury bills. From that position, the strategy will change only to the equity position when that Equity Indicator is triggered. The strategy will not return to its 50/50 position unless the Equity Indicator is first triggered.