Our Investment Theory
Inspired by Amit Trivedi
Growth versus Value
We believe that, over time, value equity portfolios will provide superior performance. However, we also believe that eliminating growth allocations will result in interim divergence from the broad markets that our clients would find unacceptable. We believe a 60% weighting for value and 40% for growth is the most appropriate weighting to balance these conflicting issues.
Active versus Passive
We believe that the choice between active and passive management is not either/or. We use both. In general, we believe that our value portfolios should be passively managed and our growth portfolios actively managed.
We believe that the portfolio policy is a significant determinant of long-term portfolio performance. Because we believe in the overriding importance of the strategic allocation, we reject managers who do not have clearly defined philosophies or who diverge from their stated policies. Because we do not believe in market timing, we reject sector managers but surely participate in systematic sector allocations. We believe in maintaining a strategic allocation and only infrequently revise that allocation. We believe in rebalancing to the strategic allocation. However, the influence of taxes and transaction costs leads us to conclude that contingent rebalancing with fairly wide bands is the most appropriate solution. We do not currently implement a tactical allocation overlay. However, we believe it is an appropriate strategy.
We believe that professional money managers will generate results far superior to a client's or wealth manager's direct security selection and management. With rare exception, separate account management is inefficient and expensive. The universe of public and institutional funds offers the best alternative for the superior management of multiple asset class portfolios. We believe that managers should be selected and evaluated based on their philosophies, processes and belief. Once selected, a manager should be allowed periods of poor performance if he remains consistent with his philosophy and process. He or she should be replaced immediately if their implementation strays significantly from the stated philosophy or process. Evaluation of managers should entail a detailed review of all available pertinent information, including both fundamental qualitative and return factor analyses. However, the ultimate decision to hire or fire should be based on fundamental data. Performance measurement should be against appropriate benchmarks, not broad market indices.