PORTFOLIO CONSTRUCTION & INVESTMENT MANAGEMENT
A major pillar of comprehensive wealth management is investment management. At PrairieView Partners, we seek to provide you with consistent, competitive investment returns over time by capitalizing on a range of financial opportunities. We limit risk to a level with which you're comfortable, avoiding speculative investment choices. We pursue this goal with diversification, disciplined management and sophisticated market selection. The following tenets are key to our investment approach:
Asset Allocation
Our philosophy is grounded in modern portfolio and asset allocation theory (Brinson, Beebower and Hood, 1986).
Modern portfolio theory, which won a Nobel prize in economics for Harry Markowitz in 1990, demonstrates that there is a relationship between risk and return and when non-correlating assets are added to a portfolio, a higher portfolio risk-adjusted return is attained.
Asset allocation theory identifies three sources of return: asset allocation, security selection and timing. The asset allocation decision is shown to be by far the largest determinant of variation in returns. Therefore, we concentrate efforts on the total portfolio composition and how assets are allocated.
Strategic Approach
The asset allocation decision is based on a long-term macroeconomic view, not short-term anomalies. We consider many variables when constructing portfolios including, but not limited to, expectations for: inflation, deflation, corporate earnings, geopolitical concerns, interest rates and currency valuations. We seek to exploit proven long-term relationships among asset classes, such as tilting toward small cap and value stocks when constructing portfolios. We do not pick individual securities or time markets in the short term.
Controlling Cost
We believe the cost to invest is critical in portfolio construction. Portfolios are constructed to represent the asset classes and markets we target at the least expensive cost.
Indexing / Passive Management
Many of the stock asset classes are represented by indexes for several reasons:
1. Indexes provide effective representation of asset classes and markets.
2. Indexes are offered in the marketplace at very low costs.
3. Indexes can be very tax-efficient.
We track several hundred indices and evaluate the appropriateness of each in terms of how it represents a market and how it is constructed. Tracking a particular index can impose limits on investment return. To address this, we work closely with partners such as Dimensional Fund Advisors (DFA) and Vanguard to implement our strategies in a way that allows us to truly “capture” certain risk premiums.
Managing Risk
We pay particular attention to managing risk in portfolios. Two primary measures that we review are volatility and downside risk. We measure these for individual asset classes and for the overall diversified portfolio. Decisions to add new asset classes are based on how they impact the overall portfolio’s expected return, volatility and downside risk.
Impact of Taxes
We construct portfolios to minimize the impact of taxes. We consider the differences between types of accounts that a client may hold: taxable, tax-deferred retirement vehicle, tax advantaged charitable trusts, grantor trusts, generation skipping trusts and foundations. Each of these accounts may have differing tax considerations. The location of assets within the different accounts, therefore, makes a significant difference in long-term wealth accumulation. In addition, we aggressively take tax losses, where appropriate, and consider the alternative minimum tax in our investment decision-making.
Individually Designed Portfolios
We construct a portfolio unique to your individual needs, rather than mold your needs to a pre-formed package. Your tolerance of risk, as well as your need for return, is conscientiously considered in our design. Ongoing management takes into account the client’s specific cash flows and taxation issues. |
