Core-Satellite Portfolios The Hoge-Barrett Group

Transcription

1 Core-Satellite Portfolios The Hoge-Barrett Group BB&T Scott & Stringfellow 110 South Stratford Road, Suite 400 Winston-Salem, NC

2 WHO WE ARE Brett Hoge and Tom Barrett, CFP Business Experience: Brett and Tom have a combined 44 years of providing high-quality financial advice to clients, 30 of those years working together. Investment Philosophy: Providing strategies for affluent and high-net-worth clients is the focus of the practice. After consultation with clients, they create an investment strategy with a Core and Satellite investment approach that involves balancing risk and return. The Core consists of the suitable blend of equities, fixed income and cash or cash equivalents. The Satellites are comprised of targeted alternatives that complement and diversify the Core strategy. Brett Hoge Education: BSBA, Major Finance, Insurance and Real Estate, Appalachian State University, 1999 Licenses: Series 7, 9, 10, 31, 63, 65, Life Insurance, Health Insurance, and Long Term Care Insurance Tom Barrett, CFP Education: B.A., Major Finance, Virginia Tech, 1985 Designations: Certified Financial Planner (CFP ) Licenses: Series 7, 24, 31, 63, 65, Variable Life and Annuity, Disability Insurance, Life Insurance, and Long Term Care Insurance BB&T Scott & Stringfellow In March of 1999, BB&T Scott & Stringfellow became a wholly owned subsidiary of BB&T Corporation, headquartered in Winston-Salem, North Carolina. BB&T Scott & Stringfellow offers the best of both worlds: a regional brokerage firm that prides itself on outstanding client service which is backed by one of the strongest financial institutions in the country. Select financial advisors frequently work with our BB&T partners to coordinate investment services for valued high net worth clients. BB&T Scott & Stringfellow was founded in 1893, with headquarters in Richmond, Virginia. Since then, our mission has been to put our clients' interests first and foremost through our commitment to their financial success. BB&T Building on a tradition of excellence in community banking that stretches back to 1872, BB&T continues to offer clients a complete range of financial services including banking, lending, insurance, trust, and wealth management solutions. Traditional banking services are provided by Branch Banking and Trust Company, member FDIC and Equal Housing Lender. BB&T Wealth Management is a division of BB&T. Insurance services are provided by BB&T Insurance Services, Inc., a wholly owned subsidiary of BB&T. BB&T Scott & Stringfellow is a division of BB&T Securities, LLC, member FINRA/SIPC. BB&T Securities, LLC is a wholly-owned nonbank subsidiary of BB&T Corporation. Securities and insurance products or annuities sold, offered or recommended by BB&T Scott & Stringfellow are not a deposit, not FDIC insured, not guaranteed by a bank, not insured by any federal government agency and may lose value.

3 CORE AND SATELLITE PORTFOLIO CONSTRUCTION Building portfolios with a Core and Satellite investment approach involves balancing risk and return, asset class by asset class, to meet investor needs for financial security. Core and Satellite investing is based on the simple concept of splitting a portfolio into two segments. The Core represents the foundation of the strategy around which the more specialized Satellite(s) can be added. Why Core and Satellite matters! In recent years, investment markets with historically inverse relationships have reacted to turmoil by moving in similar fashion. We call this correlation. It can be a good thing when markets are rising, and just the opposite when markets are falling. Core and Satellite portfolio construction is designed to make sure you can participate in gains while reducing your downside risk. Covered Call Options Managed Futures Bonds 40% Stocks 60% Commodities Other REITs Satellites are typically the more targeted part of the portfolio and are designed with two goals: (1) reduce market correlation; and (2) provide additional returns (or alpha) above the market returns of the Core portfolio. Separately, Satellite investments typically carry higher risk; however, they can moderate volatility when added to a Core portfolio. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. Diversifying investments does not guarantee against market loss. BB&T Scott & Stringfellow is a division of BB&T Securities, LLC, member FINRA/SIPC. BB&T Securities, LLC is a wholly-owned nonbank subsidiary of BB&T Corporation. Securities and insurance products or annuities sold, offered or recommended by BB&T Scott & Stringfellow are not a deposit, not FDIC insured, not guaranteed by a bank, not insured by any federal government agency and may lose value.

4 THE CORE PORTFOLIO After consultation with clients, an investment strategy is created that will reflect the suitable blend of equities, fixed income and cash or cash equivalents. The Core investment usually takes the form of stocks and bonds, although it can be exclusively either, and represents the main part of the overall portfolio, typically 70-80%. The aim is to deliver a return marginally better than the market's performance (beta). Bonds 40% Stocks 60% RISK Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. Diversifying investments does not guarantee against market loss. BB&T Scott & Stringfellow is a division of BB&T Securities, LLC, member FINRA/SIPC. BB&T Securities, LLC is a wholly-owned nonbank subsidiary of BB&T Corporation. Securities and insurance products or annuities sold, offered or recommended by BB&T Scott & Stringfellow are not a deposit, not FDIC insured, not guaranteed by a bank, not insured by any federal government agency and may lose value.

5 SATELLITES: COVERED CALL WRITING There is a conservative strategy involving listed equity options that many professional and individual investors are using today to generate income, achieve total return, and partially protect individual stock positions in an uncertain market. The strategy is called Covered Call Writing. This strategy allows you to generate cash, participate in an upward move in the stock up to your predetermined price ( strike price ), while simultaneously providing yourself with limited protection from a decline in the value of your stock position. When using covered calls, you give someone else the right to buy your shares from you at a certain price for a set period of time. You basically create a ceiling, or maximum value on your stock position until the expiration of the contract. In exchange for the ceiling you have put on your shares, someone will pay you a premium up front that you will keep regardless of the price of your shares. The premium received can provide you with limited protection if the stock should drop. The premium will likely not be enough to eliminate the substantial risk you may still have from a fall in the price of your stock. Ceiling Price Current XYZ Price Opportunity Cost You receive a cash payment up front for being willing to put a ceiling on shares until the expiration of the option Covered call writing can be utilized in any market condition in your Keogh, margin, cash account or IRA against stock you already own or are looking to purchase. The investor can still realize all of the benefits of the underlying stock ownership such as dividends and voting rights, unless the call is assigned prior to expiration. This strategy is considered slightly more conservative than owning the stock outright because your maximum loss is the value of the stock position less the premium you receive in selling the covered call. Before recommending or implementing covered call writing, it is recommended that you and your advisor perform the appropriate due diligence to make sure the stock is fundamentally and technically sound.

6 SATELLITES: COVERED CALL WRITING Covered call writing is generally considered a conservative and reliable investment strategy and is appropriate for investors who are: Neutral to bullish on the underlying stock position, Interested in generating cash (income resulting from option premiums), Interested in reducing volatility in a portfolio, Willing to give up ownership of the underlying stock at the strike price of the call, and Looking for limited downside protection. In exchange for the right to buy your stock, someone will pay you a premium up front. You keep this premium regardless of what happens to your stock. If the stock is not above the strike price at expiration and the call expires worthless, you keep your shares of stock as well as the premium you originally received. If the price of the stock is above the strike price of the covered call at expiration, it is bought by the long holder of the call at the strike price, and you receive the proceeds. If the price of the stock should drop, your loss in value is partially offset by the amount of premium you have received in selling the covered call. This is a hypothetical example and is not representative of any specific security. Actual results will vary and your experience may be different. This material has been prepared for illustrative purposes only. It is not an offer to sell, nor is it a solicitation of an offer to buy any security. Prior to transacting in listed options you should consult with your financial advisor about all of the potential risks and benefits of such a strategy. This literature does not purport to be a complete description of the securities markets or any risks associated with trading options. Since options strategies involve unique risk considerations, tax consequences, and commission costs, options are not suitable for all investors. When participating in a covered call strategy, the investor is at risk of having to sell the stock if the stock s price rises above the strike price. Remember, in exchange for receiving the premium of having sold the calls, the investor is obligated to sell the stock if the option is exercised. This material must be preceded or accompanied by a copy of Characteristics and Risks of Listed Options, given to you by your advisor or by Nate Deal at 901 East Byrd Street, Richmond, Virginia Finally, you should consult a tax expert regarding any potential tax implications involved with any potential options strategy prior to placing a trade. Supporting documentation will be provided upon request. BB&T Scott & Stringfellow is a division of BB&T Securities, LLC, member FINRA/SIPC. BB&T Securities, LLC, is a wholly owned nonbank subsidiary of BB&T Corporation. Securities and insurance products or annuities sold, offered or recommended by BB&T Scott & Stringfellow are not a deposit, not FDIC insured, not guaranteed by a bank, not insured by any federal government agency and may lose value.

7 SATELLITES: MANAGED FUTURES Managed futures consist of commodities and financial futures. The broad variety of global investments combined with the historical tendency of low correlation of the investments to traditional assets can help increase the diversification of your portfolio. By their very nature, managed futures provide a diversified investment opportunity. Trading advisors can participate in more than 150 global markets; from grains to gold to currencies and stock indices. While managed futures can decrease portfolio risk, they also simultaneously enhance overall portfolio performance. Including up to 20% of total investments in managed futures funds enhances portfolio diversity and therefore promotes greater independence from general market moves. Commodities Agriculture Energy Metals Financial Futures Currencies Interest Rates Stock Indices Optimum Portfolio Mix (01/ /2008)* 100% Managed Futures Increase Returns 20% Managed Futures 40% Stocks 40% Bonds 50% Bonds 50% Stocks *1) Managed Futures CASAM CISDM CTA Equal Weighted. 2) Stocks: MSCI World. 3) Bonds: JP Morgan Government Bond Global. Source: Bloomberg. Reduce Risk This graph has been obtained from sources we believe to be reliable and accurate, but we do not guarantee its accuracy or completeness. This material has been prepared for illustrative purposes only. Actual results will vary and your experience may be different. Managed futures investments are speculative, involve a high degree of risk, have substantial charges and are suitable only for the investment of the risk capital portion of an investor's portfolio. Some or all managed futures investments may not be suitable for certain investors. An investment in an alternative investment fund should not constitute a complete investment program and may be highly leveraged. The past performance and information referred to herein may not necessarily be representative of the experience of managed futures products or particular investors and are no guarantee of future results. There is no guarantee that the fund will achieve its objectives. Carefully read the Disclosure Document for an in-depth discussion of the risks associated with futures investments before investing. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns. Diversifying investments does not guarantee against market loss. BB&T Scott & Stringfellow is a division of BB&T Securities, LLC, member FINRA/SIPC. BB&T Securities, LLC is a wholly-owned nonbank subsidiary of BB&T Corporation. Securities and insurance products or annuities sold, offered or recommended by BB&T Scott & Stringfellow are not a deposit, not FDIC insured, not guaranteed by a bank, not insured by any federal government agency and may lose value.