In response to the changes we’ve witnessed in public securities markets over the last decade, BFA’s approach to managing client portfolios has changed—and we believe, for the better. The investment landscape has broadened dramatically and the speed at which information moves markets is a factor affecting volatility. Improved technology has changed the way we analyze market data and make our investment decisions.
We apply the concept of “Relative Strength"1 to the way we allocate client portfolios; intending to overweight stronger performing asset classes and avoiding exposure to the weaker performers. When conditions change, just like fruit sold in the market, we rotate our positions away from what’s out-of-season, and into investments gaining favor (read: relative strength). For an illustration how RS can be used, see Dorsey Wright’s Tactical Allocation brochure.
Of equal or greater importance to investors today is the use of an effective risk management plan, and how it can lessen the full brunt of negative market forces. Our D.R.E.A.M. (Dynamic Risk Evaluation & Allocation Management) System© is activated over all of the discretionary brokerage accounts we manage. The system monitors the level of risks present in the equity markets and recommends limits on equity exposure in proportion to those risks. When equity markets are favorable, client positions can be fully invested; when unfavorable, they will be reduced incrementally.
Whether the client is new to BFA, or an existing client opening a new account, our approach to new account construction is consistent
Client Risk Analysis
Each client will be assessed as to financial condition, investment experience and future expectations. Based on their personal risk score and any other known factors, we will agree upon a strategy for their Investment Plan. This plan may include recommendations for a broad array of (including Alternative) investment classes.
BFA relies on a blend of fundamental and technical analyses for investment selection and overall portfolio design. Factored into a portfolio’s design are pre-set reward-to-risk ratios for nearly every position. This helps us assess performance on individual holdings against expectations, and reinforce that the position is properly sized in proportion to the value it contributes to the portfolio.
Periodic Reporting and Analysis
In addition to online access and monthly statements, clients are provided periodic performance reports. These reports can aggregate reporting of multiple client accounts (including 401k’s, cash-value insurance policies, annuities, college funding accounts, etc.), illustrating how investments are allocated across different investment classes and show how each tracked portfolio is performing (over different time periods, and against certain benchmarks).
Tax Monitoring, Planning
We monitor taxable investment accounts quarterly for realized gains & losses so that we can better manage after-tax returns. Year-end repositioning can be an effective way to safely eliminate unnecessary taxes and improve overall portfolio performance.