Philosophy In the investment management process we assist clients in developing investment portfolios that reflect their stated goals, objectives, and personality. We believe that investment decisions should be made as a result of a carefully constructed plan which is a reflection of the investor’s objectives. Our disciplined approach emphasizes diversification, risk control, strategic and tactical asset allocation, careful manager selection and monitoring, and a rebalancing discipline. This approach is differentiated from our competitors because of the level of insight, discipline, and experience we bring to the process of market evaluation, manager due diligence, disciplined thinking, cost control, and new idea generation.
It all Starts With Your Personal Situation The investment and retirement planning process sets the stage for portfolio construction. The discussions we have during the planning meetings help determine your objectives, comfort level with different types of investments, risk tolerance, tax situation, investment time horizon, and other conditions unique to your situation. All of these inputs help shape an investment portfolio that is appropriate for you.
Where We Add Value
Market Insight & Commentary
Discipline over Emotion
Maintaining Cost Effectiveness
Initial models are established which provide a snapshot of asset class allocation and serve as a platform for rebalancing decisions. For individuals, investment planning can be fully integrated with personal financial planning to ensure clients are being introduced to those strategies that will assist them in achieving non-portfolio related financial objectives. The goal is to establish an appropriated strategic allocation for each client / portfolio type. The strategic allocation is largely determined by each clients risk tolerance, and desire for income or capital appreciation. Personal Portfolio Allocation With the strategic asset allocation as a starting point, portfolios will be adjusted to reflect our current tactical adjustments as well as each client’s personal situation. Tactical adjustments typically occur if we sense a major pricing anomaly exists in the market place. Examples would include: growth stocks being overvalued vs. value stocks, small-cap stocks being overvalued vs. large-cap stocks. Other adjustments are made to reflect individual client preferences. People possess differing levels of comfort with stocks. They may have a short time horizon because of a large upcoming expenditure. All of this is reflected in the ultimate personal portfolio allocation for each client. Manager Selection This is a critical part of our process and where the principals’ backgrounds should add enormous value. Looking at performance numbers is just one small step in evaluating investment products. Having insight into market and economic conditions, portfolio management styles and strategies are all valuable in assessing the ability of a fund company and fund manager to perform well and provide the best fit for our clients. Manager selection is a result of constant monitoring process that looks at returns relative to the appropriate peer group and benchmark, portfolio behavior in different market environments, consistency of positive returns, the investment process, and other important factors. The goal of the process is to find managers that are suitable for our client’s objectives, represent their specific style in the best possible way, and have the highest probability of continued success. Data for our monitoring process comes from services that we subscribe to including Morningstar and Advisors Intelligence as well as our own proprietary tool set. In some cases index products may be the best choice for implementation. An example would be in a tactical asset allocation shift where we are trying to add representation in a specific area and don’t want to risk using an active manager who might be temporarily out of synch. Another area for the use of index products would be areas of the market where we think that active approaches will not be successful in generating consistent out performance.
Diversification Diversification in your portfolio is defined as decreasing risk by spreading assets over several categories of investments. Each client’s portfolio consists of several assets classes including stocks (or equities), bonds and cash or money market instruments. This mix of asset classes creates diversification since the movements in each area don't tend to be highly correlated. Client portfolios are also typically diversified across several investment managers with different approaches (growth and value, for example), across market capitalizations (small, mid-sized, and large), and across geographies (domestic and foreign stocks). For bond investments, we use a combination of active managers, ETF's, Index Funds and individual issues, which allow us to create "bond ladders". Ultimately, the mix of assets chosen will determine how diversified each person's portfolio is. Rebalancing We have conducted significant research that suggests that periodic rebalancing between asset classes reduces volatility and potentially enhance returns. For example, when an asset class experiences an unusually positive run (as measured either by duration or amplitude) a rebalancing discipline encourages you to incrementally reduce your position in that asset class and commit those dollars to segments of the market that are currently out of favor that should benefit as the market rotates to its longer term mean.
Shifts in asset allocation away from the strategic model take place only when there are clear opportunities to add value by doing so. These opportunities are infrequent, and are usually supported by evidence of a pricing anomaly in a particular asset class. For instance, our indicators may suggest that an unprecedented move has taken place that would dictate a tactical shift. A recent example of such a move would be the extreme out performance of large cap growth stocks vs. large cap value stocks from 1996 - 2000. This extreme was marked by the unprecedented duration in months of the out performance as well as the amplitude of the out performance as measured by standard deviation. This unprecedented period of large cap out performance resulted in extreme overvaluation of growth stocks relative to value stocks which validated this move's exceptional status. Any shift away from the strategic model as a result of our research creates a tactical model that will be followed as long as conditions dictate. Some would refer to this as active asset allocation. We consider any move like this to be a temporary deviation from the strategic asset allocation model. Once again, our goal is to limit trading and focus on the long-term. Market Insight and Commentary Clients receive quarterly performance reports that detail how the portfolio has performed over various time frames (past quarter, past year, since inception). Our outlook and commentary is summarized in our quarterly newsletter.
New Ideas We are constantly working to develop implement new ideas for our clients. Generally portfolios are implemented using mutual funds, exchange traded funds (ETFs), and individual bonds. We may also develop our own customized baskets of securities if no acceptable existing solution exists. Discipline over Emotion Dealing with money can be an emotional process. Part of our job is to temper the emotional and interject our disciplined approach. Over time, we believe that emotionally based decision making probably subtracts value where as rational decision making adds value. Maintaining Cost Effectiveness Part of our manager due diligence is to review expense rations to make sure the results justify the cost. We are also using ETF based strategies in situations where transaction costs are an issue, or where no acceptable actively managed option exists. Reporting
Clients receive quarterly performance reports that detail how the portfolio has performed over various time frames (past quarter, past year, since inception). Our outlook and commentary is summarized in our quarterly newsletter. Tax Management Taxable accounts are reviewed for opportunities to reduce the tax burden to the client by offsetting gains and losses. Contrary to popular belief mutual funds can be very effective vehicles for tax management. Custodians
We currently utilize Charles Schwab & Co. as our custodian. The client has an account directly with the custodian that is linked to our “Master Account”. This allows us, with the proper authorization, to make changes to the composition of the account and to access the raw data necessary to produce the detailed Quarterly Performance Reports provided to Managed Assets clients. Our business platform has been established to minimize conflicts of interest such that our recommendations are influenced only by an evaluation of the merits of the investment. On certain accounts, Fairlead Financial Advisors, LLC may receive fees from or pay fees to other duly licensed Registered Investment Advisors for assistance in servicing clients. Such arrangements are disclosed to clients and no proprietary information is ever disclosed without the clients’ authorization.
Compensation Our primary service involves managing investments on a fee basis. The fee is calculated as a percentage of assets, charged quarterly to the account. Minimum account size is $500,000. The annual fee is 1.00% on the first $500,000, .75% on amounts $500,000 to $1,000,000, and .5% for amounts $1,000,000 to $2,000,000. For amounts above $2,000,000 the fees are by agreement. There is no transaction related compensation paid to (e.g., no commissions), nor any other benefit received by (e.g., soft dollar arrangements) Fairlead Financial Advisors, LLC on these accounts other than the agreed upon fee paid by the client.