With a set of asset classes and a forecast of expected returns and risk factors, we can create observations of how these asset classes interrelate to construct portfolios that we believe will offer the highest return per unit of risk taken. The resulting model portfolios serve as our base recommendation and starting point – we honor reasonable constraints and make customizations when warranted. For instance, substituting taxable bonds for tax-exempt bonds, substituting some fund exposure for low-cost basis holdings where appropriate, and substituting bond funds for individual bond ladders.
The goal is to a build a portfolio that is tailored to your specific goals and objectives and that will function well under all market conditions.
As an independent investment manager, we screen the investable universe for appropriate investments and are not limited to any fund family. We build portfolios taking a top down approach selecting what we think are the best index funds to represent each respective asset class. This approach helps to minimize the risk of having overlapped or missing asset exposures. We also believe in and subscribe to the Fama-French Three Factor Model, which is an asset pricing model that considers the fact that value style and small-cap size stocks tend to outperform markets on a regular basis over a long-term time horizon. As a result, we overlay additional small and value exposure on the stock side to get to an overall 20-30% tilt to small and value factors.
When complete, you will end up with a globally diversified portfolio with exposure to more than 30,000 securities in 44 different countries and have a small-cap and value style factor tilt all for a weighted average expense ratio of 0.09% to 0.15% depending upon the chosen asset allocation.