The Value of an Investment Process

Transcription

1 The Value of an Investment Process Advance Capital Management, Inc. is an SEC registered investment adviser. Registration with the SEC does not imply any level of skill or training. THIS MATERIAL IS FOR INSTITUTIONAL/RIA USE ONLY. NOT FOR USE WITH THE PUBLIC.

2 Who We Are Advance Capital Chris Kostiz President & Chief Investment Officer John Pelon Institutional Business Director 2

3 Your average financial adviser 3

4 Your average financial adviser Consistency across client portfolios Identifying problems early Client retention SEC scrutiny Contingency planning Performance 4

5 2016 Typical SEC-Registered Investment Advisor 9 employees clients 103 accounts Source: IAA Newsletter 5

6 The investment process NYU 6

7 Looks like an investment process? Pick only 4 and 5 star mutual funds Wholesaler s best ideas Your firm s select list Favorite funds Gut feeling 7

8 What makes a good investment process? Plan + Discipline = Investment Process 8

9 What makes a good investment process? 9

10 Process defines absolutes Tenure Size Return Buy or sell? 10

11 Example: Manager Departure 11

12 An art or a science? 12

13 Example: Did Not Agree Templeton Global Bond Fund (Thesis past few years) - China growth remains intact - U.S interest rates to increase - Long European periphery currency 13

14 Developing an Investment Process 14

15 Investment Process Checklist Investment Policy Statement Capital market assumptions Security screening criteria & process Due diligence Implementation & trading Ongoing monitoring Performance attribution analysis Reporting 15

16 Investment Process: Summary Risk Management Client Risk and Return Objectives Client Investment Constraint Build Expected Return Forecasts Asset Class & Strategy Selection Portfolio Construction Forward looking return expectations Long-term time horizon Correlation analysis Proprietary search criteria and performance evaluation In-depth quantitative and qualitative manager due diligence Selection and on-going monitoring Ongoing active management Multiple quantitative and qualitative factors analyzed Ex-Ante Applied throughout the investment process In-depth analysis and review of client objectives Ex-Post Ongoing portfolio reviews: (Performance, exposures, attribution) Evaluation of absolute and relative risks Beta Standard deviation Information ratio Alpha Downside volatility Past performance does not guarantee future results. Portfolio managers may use some or all of the techniques described herein. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. 16

17 ACM 7-Step Screening & Due Diligence Process 17

18 Step 1 Idea Generation & Research Prioritization Industry Contacts Quantitative screens Continuing Education Existing Relationships 18

19 Step 2 Performance Analysis Style Consistency Risk Adjusted Performance Metrics Alpha Sharpe Ratio Information Ratio Expense Level vs Peers 19

20 Step 3 Due Diligence Questionnaire Investment Philosophy Portfolio Style Compensation Structure Expense Levels Team Bios Risk Policies 20

21 Step 4 Interview Portfolio Managers Integrity Sustainable process Execution Conviction Team structure 21

22 Step 5 ACM Team Collaboration 22

23 Step 6 Final Follow Up 23

24 Step 7 Ongoing Monitoring Attribution analysis Scorecard Strategy performance Regular reviews with managers Exposure & risk assessment 24

25 investment teams investment teams Final Thoughts 25