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Portfolio Construction Process: Three legs of the stool

Macroeconomic Research

The Investment Committee starts portfolio discussions with a deep dive into macroeconomic conditions. The part of the conversation reviews leading economic indicators, economic growth, consumer spending/conditions, broad-market valuations, etc. The objective here is to answer the questions of where we stand in the economic cycle and whether portfolios should be risk on or risk off.

Asset Allocation Decisions

Research has shown that asset allocation decisions are one of the major factors in long-term portfolio returns. This process works through the dynamic of major asset classes and how much to allocate to each. Examples include large cap versus small cap, growth versus value, domestic versus international, investment grade versus high yield, and which sectors to overweight. Through both quantitative and qualitative tools, we work to continuously find relative value and position portfolios optimally.


Security Selection & Manager Research

Security Selection: Even after all of the macroeconomic and asset allocation research is complete, the job isn’t done. There are literally thousands of stocks, bonds, mutual funds, and ETFs available to institutional investors and we take on the job of finding the right tools to implement our portfolios. Whether that be passive, broad-based ETFs or concentrated active managers we follow a process to implement client portfolios with the right securities.

Manager Research: In the case of inefficient asset classes, our philosophy is to invest in those areas with an active approach. With so many managers out there, it’s important to have a rigorous process to select the right partner to allocate capital in their respective discipline. We follow a 3-phase process during manager selection that evaluates both quantitative and qualitative data points. During the quantitative phases, we dig deep into the numbers. On the qualitative side, we require interviews with the management teams to tell us qualitatively what the numbers won’t. Through the process, we build comfort and trust in the team to take on a specific part of client portfolios.

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