Investment Performance

Investment Styles

Core Fixed Income

Core - High Quality Bonds

This investment style is uniquely managed for each client on a case by case basis. It primarily invests in individual high quality bonds with consideration given to credit risk, yield, maturities, income needs, and tax implications. By owning individual bonds rather than bond funds, we can receive a full return of principal by holding the bonds to maturity. We generally favor treasury inflation protected treasury bonds, govt. agency bonds, and tax free municipal bonds with this investment style, but may purchase investment grade corporate bonds when yields are comparatively attractive. The objective of this investment style is to add stability to the overall portfolio and provide income as needed.

Trend Following Fixed Income

Trend - Bond Funds

This investment style normally invest in high yield corporate bond fund. If a down trend develops in high yield corporate bonds, this investment style will switch to a US money market fund, a US high quality bond fund, foreign money market fund, or other fixed income fund that has a favorable trend. This investment style may invest in mutual funds, closed-end funds, or exchange traded funds (ETFs). The objective of this investment style is to outperform the Lehman Aggregate Bond Index and preserve capital during periods of bond market declines.

Core Stocks

Core - Dividend Income Stocks

This investment style invests primarily in U.S. large cap dividend paying stocks. It will normally be invested in 20 stocks and remain fully invested throughout a full business cycle. Stocks are selected using a strict screening process and monitored daily utilizing a quantitative ranking system. Specific stocks are sold if they suffer a large price decline in high trading volume because of unfavorable news concerning the company. The investment style is limited to a maximum of five banking stocks and five energy related stocks in order to ensure adequate diversification. The objective of this investment style is to outperform the Dow Jones Industrial Average with similar volatility.

Core - Quality Growth Stocks

This investment style invests primarily in U.S. large cap dividend paying stocks. It will normally be invested in 20 stocks and remain fully invested throughout a full business cycle. Stocks are selected using a strict screening process and monitored daily utilizing multiple quantitative ranking systems. Lower ranked stocks are regularly pruned from this investment style in favor of stocks that we believe are more likely to realize above average appreciation in the next few months. A stock will also be sold if it suffers a large price decline in high trading volume because of unfavorable news concerning the company. This investment style maintains general sector weightings similar to that of the S&P 500 index but will overweight favored industry groups within a sector. The objective of this investment style is to outperform the S&P 500 Composite Index with similar volatility.

Trending Following Stocks

Trend - Large Cap Stocks

During normal market conditions, this investment style will hold the same 20 stocks as our Quality Growth Stock investment style with sector weightings similar to the S&P 500 index. If the S&P 500 index begins to trend downward, we will hedge downside risk by selling a portion of the stocks and buying a hedging instrument to offset against further declines. When the downtrend is exhausted, the hedge is removed and restored to a fully invested position as a new upward trend develops. The objective of this investment style is to outperform the S&P 500 Composite Index during favorable market conditions and preserve capital during market declines.

Trend - Mid Cap Stocks

During normal market conditions, this investment style will hold 20 mid cap stocks with sector weightings similar to the Russell Midcap index. If the S&P 400 index begins to trend downward, we will hedge downside risk by selling a portion of the stocks and using the proceeds to buying a hedging instrument to offset against further declines. When the downtrend is exhausted, the hedge is removed and restored to a fully invested position as a new upward trend develops. The objective of this investment style is to outperform the Russell Midcap Index during favorable market conditions and preserve capital during market declines.

Trend - Global ETFs

This investment style normally invests in exchange traded funds experiencing the strongest upward trends evaluated on risk-adjusted basis. Candidate ETFs include U.S. style and sector funds, global regional funds, and country specific funds. Country specific funds include Japan, Taiwan, Korea, China, India, Russia, Brazil, Germany, England, France, Spain, Switzerland, Austria, Sweden and many others. During global stock market down trends, this investment style's stock market exposure will be reduced in order to protect against further stock market declines. The objective of this investment style is to outperform the MSCI All World Index during favorable market conditions and preserve capital during global stock market declines.

Core Real Estate

Core - Equity REITs

This investment style is for investors who want a liquid way to participate in real estate. It normally invests in 10 publicly traded Real Estate Investment Trusts (REITs) and will typically remain fully invested throughout a full market cycle. This investment style is diversified among equity REITs, but generally favors the residential and health care sectors because they tend to be less correlated with the economy. The objective of this investment style is to earn income exceeding 5% per year from dividends and to outperform the Dow Jones Equity REIT Index.

Core - Apartment Buildings

This investment is for investors who can accept a lack of liquidity in real estate in order to earn better long term returns without the day to day market volatility of publicly traded REITs. This investment is uniquely managed for each client on a case by case basis. It nvests in apartment buildings that have positive cash flow which is regularly distributed to the investors. Investors typically own fractional shares in three or more apartment building in different cities. This is a passive investment with a managing investment partner that oversees the operation of the property. These are tax advantageous as some of the income is sheltered through depreciation. The objective of this investment is to earn internal rates of return (income and appreciation) exceeding 10% per year and add stability to the overall portfolio.

Core - Trust Deeds

This investment style is uniquely managed on a case by case basis for client's who can accept a lack of liquidity. Depending on the size of the client portfolio, we may invest in individual trust deeds or in a private mortgage fund which is a diversified pool of short term commercial loans backed by real estate. In nearly all cases, these loans will be first trust deeds with loan-to-value ratios of less than 70%. The objective of this investment style is to earn annual returns of 8-11% and add stability to the overall portfolio.

Definition of Terms

Investment Portfolio:

This is an investor's entire investment portfolio not including home, personal property, and liquid funds needed for living expenses and emergencies.

This may include brokerage accounts, IRAs, annuities, rental property and company retirement plans such as 401(k)s.

A portfolio should be tailored to meet an an investor's objectives. Then it should be monitored and adjusted in order to control risk.

Investment Style:

This refers to an investment approach to buying or selling securities within an asset class. We use "core" and "trend" to distinguish between two distinctly different approaches that we use.

Our core investments would typically stay mostly invested throughout a full business cycle.

Our trend following investments attempt to reduce market exposure during downtrends in order to preserve capital.