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investment review

Win by Not Losing: Unemotional Investment Management

As an Investment Manager, I have always had the philosophy of being in the stay rich business and to win by not losing in the core part of an investment portfolio.

The Unemotional Investment Portfolio: Background

A portfolio is a group of assets set aside for some need or spending in the future.  The ultimate achievement for any portfolio is to meet the end goals by taking the least amount of risk needed to get the results required.  This philosophy leads to having a large core part of your portfolio be all weather long term holdings that hold up well in rough markets.  This discipline keeps a portfolio on a solid foundation in rough times and helps investors and advisors avoid acting out of greed or fear.  Let’s call this building an unemotional portfolio.

Comparing Investment Strategies

This topic came to mind as I was reviewing the recent coverage in the market and then began to compare how strategies we have been using for years as the central core of our client portfolios have been doing.  The results were stunning in that our managers that we are counting on holding up have done a spectacular job.

This is not to say these managers have not had negative returns but they have been significantly ahead of their benchmarks and peers.  I have focused on one year-to-date performance thru 2-9-2016.

Following is a few examples of our firm’s largest Equity holdings:

American Century Equity Income

YTD (2/9/16) : -2.64
+/- Index: 6.55
Category Ranking: 3
1-year: -2.17
+/- Index: 10.02
Category Ranking: 3

Queens Road Small Value

YTD (2/9/16) : -5.76
+/- Index: 5.50
Category Ranking: 3
1-year: -5.91
+/- Index: 10.50
Category Ranking: 1

Nuveen Santa Barbara Dividend Growth

YTD (2/9/16) : -7.08
+/- Index: 2.72
Category Ranking: 12
1-year: -9.20
+/- Index: 1.22
Category Ranking: 41

Reinhart Partners Mid-Cap Value

YTD (2/9/16) : -7.99
+/- Index: 2.89
Category Ranking: 13
1-year: -12.69
+/- Index: 3.19
Category Ranking: 28

What you see are four examples of managers in large, mid and small caps that are “stay rich” managers.  In each case, all four managers beat their benchmarks by significant amounts and led their peer groups.

Investment Management Strategy

Short-term Investment Grade Debt

We also have focused all of our fixed income positions on short-term investment grade debt.  We do this because fixed income is part of a portfolio for safety and income, in that order.  You accept the lower-return potential that bonds provide longer-term for safety of principal and consistent cash flow in times like this.  Investment grade corporate and government bonds typically hold up well in times like this.  Junk bonds, foreign and emerging debt, etc., do not.  Our core bond positions are all up between 1 and 2 percent YTD versus junk bonds being down -4.95%.

Low-correlating Alternatives

There has been a lot of focus on low correlating alternatives the last few years.  We are certainly seeing these pay off in our portfolios this year.  The two primary funds we have used in this space are long/short products and are up 2.01% and 5.70% YTD.

Wealth Management in 2016

What 2016 is demonstrating is that two old tenants of portfolio management are not dead as some would like to believe:

  1. Asset Allocation works and protects on the downside
  2. Active Management works to protect assets

During the period of the last three years, we have seen the equity market go up consistently.  A rising tide raises all boats, but now you can see how active management works to protect your portfolio.

The key to all of this is building a disciplined all weather core portfolio.  You must completely understand what a manager does and the only way to know that, in our opinion, is good old-fashioned hard work and due diligence.  We meet every manager we use in person and get comfortable with what they do to ensure we understand the risks they take.  The results mentioned above prove we were right.

If you would like further information, feel free to reach out to Investment Portfolio Manager Gregory Pierce via phone 920-230-2215.

–Greg Pierce

Investments involve risk and unless otherwise stated, are not guaranteed.  Individuals should first consult with a qualified financial adviser and/or tax professional before implementing any strategy.  This information is not intended to provide investment, tax, or legal advice.