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Wealth Management

Structured Asset Approach

ACCEPT MARKET EFFICIENCY

Efficient Markets Hypothesis — 1965
Eugene F. Fama, University of Chicago

 

Behavior of Securities Prices — 1965
Paul Samuelson, MIT
1970 Nobel Prize in Economics

  • Current prices incorporate all available information and expectations and are the best approximation of intrinsic value
  • Price changes are due to unforeseen events
  • Mis-pricings do occur but not in predictable patterns
 
  • Market prices are the best estimates of value
  • Price changes are random
  • Future share prices are unpredictable

Structured Investing Approach

Don’t Try to Beat the Market
  • Active management cannot consistently add value through security selection and market timing
Capture Market Rates of Return
  • We seek to capture market rates of return by investing in large numbers of stocks in selected asset classes, resulting in portfolios with thousands of stocks
Exclude Certain Groups of Stocks with Heightened Risk or Inefficiency
  • We exclude new stocks (IPOs), financially distressed and bankrupt companies, and illiquid stocks
Minimize Trading Costs
  • We own representation in the selected asset classes and hold onto them, rather than frequently buying and selling
  • We don’t attempt to track indexes as this can result in significant trading costs
  • Our portfolio managers have flexibility on when to add or remove individual stocks from asset classes

Active Money Managers Have Difficulty Beating the Market

Mutual Fund Manager Underperformance from 2005 - 2009