Investment Vehicle Selection

Once the asset classes have been selected and the allocation defined, the next step in building a proper portfolio is identifying the vehicle that will give our clients full and efficient exposure to the asset class. One of the principal decisions to be made is whether to employ an active or passive strategy, or a combination of both. Active managers may be used when there is no passive alternative or when we have great confidence in the manager’s ability. The decision matrix on this page details the process we use when validating the proper choice of active and passive vehicles.

Choosing the best active managers:

If we choose an active manager on behalf of our clients, we look for the following characteristics:

• A well communicated and understandable strategy

• Proven ability to add value

• A culture that places investor interest above all else and focuses on investment management, not asset gathering

• Access to institutional products and pricing.

Choosing the best passive strategies:

When evaluating passive vehicles, the factors to consider are cost, tax efficiency, and the vehicle’s overall effectiveness, capturing its asset class objective. The importance of these factors varies according to market segment.

In the largest of U.S. stocks, reducing costs has the biggest impact on returns, but in other parts of the market, actual portfolio design may have greater impact and warrants greater consideration. Ultimately, we pay attention to the factors that matter most in each sector of the market and use managers who exploit those factors most effectively.