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active portfolio management

Our investment philosophy is one of the unique attributes of our service. Our active asset allocation strategy has a goal of participating in gains when market conditions are favorable, and reducing exposure when conditions are unfavorable. We control this risk thru “Tactical Asset Allocation”. Most investment advisors specializing in asset allocation use a strategic model (static diversification based on Modern Portfolio Theory), rather than an active approach. Active management is characterized by flexibility and adaptation, changing the allocation of assets as markets change and not limited to some predetermined “style box”. As active managers we employ tactical alternatives that are unavailable within a passive strategy. For example, we can: over/under weight asset classes and sectors, or avoid them completely. This allows us to invest in more of what is working and less of what is not.

We make portfolio adjustments based on current market conditions, not some predetermined rebalance calendar. When our risk indicators get high we get defensive and move to Wealth Preservation mode, conversely when these indicators are low we take a more offensive stance and move to Wealth Accumulation mode. The Decision Difference is that our Investment Philosophy is designed to manage risk in all market conditions. The following chart depicts how challenging it is for investors to make up losses.

Too many investors lose sight of the impact that a bear market can have on your investments and ultimately your goals. One important point is that you don’t need to equal or outperform the market in the positive years if you protect your capital in the down market years.
Modern Portfolio Theory argues that a diversified portfolio will limit risk to capital through diversification alone. Yet in 2008, all asset classes fell hard, proving that diversification is not enough when correlations between them are equal.
Many asset management firms performance are graded on a curve. For example, if the S&P500 index is down 40% and they are down 35%, they score good grades. That may fly for the assets of large institutions but it is our goal to protect the hard earned money of our clients in absolute, not relative, terms. You can’t eat or retire on relative returns in sideways and down markets.