Presentation on theme: "Investment Advisory Services"— Presentation transcript:
1 Investment Advisory Services Park Avenue SecuritiesInvestment Advisory ServicesQuantitative Innovations
2 Key Terms DefinedRisk – The chance of an event different from what one expects.“Risky Asset” – Any asset that commands a risk premium above the yield of a T-Bill.Asset Class – Broad classifications of investment opportunities with similar capital structures and/or characteristics.Risk Tolerance – The compilation of an investors ability to accept risk to achieve a required return given a specific time horizon and investment amount.Asset Allocation – The process by which multiple classes risky assets are utilized within a portfolio to achieve a specific risk/return objective.Exchange Traded Fund (ETF) – A collection of securities assembled to mimic the return of a specific index or benchmark (traded and priced intraday on an exchange)Lets quickly talk about and define a few key terms before me move forward. This will help us understand how to interpret reasonable expectations as we move ahead.
3 Initial Roles and Responsibilities InvestorDefine Investment Goals and Time HorizonDefine Reasonable ExpectationsReview RecommendationsUpdate on any Changes that may Influence Investment GoalsPark Avenue Securities AdvisorHelp Client Define Investment Goals and Risk Profile (Expectations)Team with PAS to Develop a Portfolio With Clients Specific Goals in MindReview RecommendationsPark Avenue Securities Investment Advisory Services TeamTeam with Advisor to Develop a Portfolio With Clients Specific Goals in MindMonitor Models and AssumptionsProvide Insight and Research to Support DecisionsProvide Quarterly Performance Reports & RebalancingThe purpose of this page is to discuss the roles and responsibilities of the parties involved prior to engaging in an advisory relationship. After your account has been established a slightly different set of parameters evolve, but we will discuss those a bit later.The Investor’s Role: Speak frankly with his/her advisor regarding dreams and goals and with the help of the advisor, try to define a monetary amount needed to fulfill these goals. Review the proposed investment recommendations with the advisor to determine whether the client is comfortable with them or if changes need to be made. After implementing a portfolio with the advisor, the investor should continue to monitor the portfolio on a regular basis. We would recommend that at a minimum, the investor reviews the quarterly performance reports that are produced and distributed by PAS and bring any questions or concerns to the attention of their advisor. Finally, the investor should inform his/her advisor of any changes to goals or any major life events, i.e. children, marriage, inheritance… that may effect the current portfolio and the allocation of assets.The Advisor’s Role: Through discussion with the client, help to define the client’s goals and calculate a monetary amount to meet these goals. Help the investor complete the client questionnaire which reflects the client’s risk profile. The advisor will then work with Advisory Services to determine which Quantitative Innovations portfolio matches the client’s risk profile. The advisor should also continue to monitor the portfolio on a regular basis, reviewing the portfolio at a minimum of at least quarterly. Whenever Advisory Services makes recommended changes to the model, the advisor should review the recommendation, discuss it with the client. With QI all model changes will be automatically implemented on behalf of the investor.Role of PAS Advisory Services: Based on the client’s questionnaire, Advisory Services will recommend a QI portfolio of mutual funds and / or ETFs. The diversified portfolio will be developed keeping the client’s risk tolerance in mind. On an ongoing basis Advisory Services will monitor the portfolio allocation and the mutual fund managers individually and their effects on the portfolio as a whole. When research would suggest, Advisory Services will recommend to the advisor and client if a fund change should be made. As part of this change, Advisory Services will explain the reasons behind the recommendation. Finally, Advisory Services will provide the client and advisor with accurate quarterly performance reports and automatic rebalancing on a quarterly, semi-annual, or annual basis. The performance reports will facilitate both parties in monitoring the effectiveness of the portfolio.
4 Process of Disciplined Investing Investor’s ProcessInvestment Advisor’s ProcessDefine Your Investor ProfileRealistic look at expectations and an unemotional appraisal of the ability to accept risk in order to achieve a desired outcomeSelect the Right Asset Allocation StrategyEvaluate Your PortfolioInterpret and Quantify your Risk ToleranceListenYour GoalsObjectivesTime HorizonHelp define the best asset allocation solutionAssist you in managing your ongoing expectationsAssist the Evaluation of your PortfolioPAS suggests that there is a defined process for disciplined investing. The first step is to define the investor’s profile. This means determining the investor’s ability to handle fluctuations in their portfolio. To do this, the investor and advisor will walk through the client questionnaire together.The second step is to select the appropriate asset allocation strategy. Each asset class, such as stocks, bonds, and cash, has an inherent risk associated with it. Based on the client’s investor profile, it is important to develop a portfolio that attempts to create the appropriate mix of these asset classes for the client.Finally, after putting together a portfolio for the investor, it is important for all parties involved to evaluate the portfolio on a regular basis. PAS strongly recommends that, at a minimum, clients review their quarterly performance reports. If there are any questions and/or concerns, they should be brought to the attention of the financial advisor immediately.
5 What is Diversification? As we just discussed, each investment class has a certain level of inherent risk. Some investments will react similarly to changes in the market, such as an increase in interest rates, whereas other investments may react in an opposite manner. By spreading assets among a number of different investments, an investor may reduce the risk of excessive loss in any one security.Spreading your assets among a number of different investments in an effort to reduce the risk of an excessive loss in any one security.
6 The Only Certainty About the Markets is That They Are Uncertain Uncertain MarketsContinuing with the discussion on diversification, not only is it important to diversify between asset classes, but also to diversify within each asset class. The chart above shows performance for a number of equity indices (S&P, Russell), fixed income (BarCap Agg), and International (MSCI) over a 5 year period. It is important to note that what was the best performer one year may be the worst performer the following year (Point out BC Agg. From 2002 to 2003), and vice versa (Point out Russell 2000 Growth 2002 to 2003). This is due to market cycles. Because of this, we strive to develop portfolios that are diversified, in order to minimize the fluctuations, and to remove focus from what was “hot” last year.Source: Callan AssociatesThe Only Certainty About the Markets is That They Are UncertainThe indices listed herein are unmanaged indices. Individual Investors cannot invest in these indices.
7 Do These Companies Sound Familiar? American Cotton OilAmerican SugarAmerican TobaccoChicago GasDistilling and Cattle FeedingGeneral ElectricLaclede GasNational LeadNorth AmericanTennessee Coal & IronUS Leather PreferredUS RubberAsk the client if these companies look familiar.Explain that they are the original Dow Industrials, first published in 1896, just over 100 years ago. The Dow Jones Industrial Average is commonly considered the 30 blue chip companies that best represent their respective industries. They are perceived to have solid backgrounds and fundamentals. As this list shows, if someone invested in the 12 best companies from 1896 and held them, only GE would still be a Dow Industrial stock. Therefore, even when we diversify the asset classes, we need to further diversify the managers based on the individual securities they hold. Again, this highlights the need to have a diversified portfolio.
8 How Does Quantitative Innovations Account For This? Diversification and Asset Allocation are KeyBy concentrating on asset classes rather than individual equity or debt securities we ensure that the active risk associated with your portfolio is not dominated by a single positionWe strive to understand the risks and potential rewards inherent of each asset class as well as how they interact with others, i.e. correlationVolatility is ImportantValuations are Most ImportantWe seek opportunities in asset classes that are undervaluedWe work to invest in asset classes that provide favorable opportunities on a forward-looking basisOnly purchasing asset classes that have already done well versus their peers creates “whipsaw risks”Chasing performance is a zero-sum game and can detract from ongoing resultsMarket Timing is DestructiveWe are Investors, not SpeculatorsOur Philosophy:All sound investment processes start with a philosophy. This determines not only what we will do, but just as importantly, what we won’t do. First, we follow a diversified approach. 91.5% of performance variability is driven by asset allocation. Concentrated positions make little sense to us.Second, Valuations and Volatility drive our investment decisions. What we view as attractive is: (1) what is cheapest relative to everything else and (2) what has enough return potential to compensate us for its volatility.Finally, above and beyond all, we are not market timers. We are fully invested at all times.
9 Portfolio Construction Attempt to Build Portfolios that Maximize Return Per Unit of Risk Within Designed ParametersThe next step we take in constructing a portfolio is attempting to build portfolios that maximize the return per unit of risk within designed parameters. Investment theory suggests that an investor should require higher returns to take on more risk. Our portfolios try to maximize the returns based on the level of risk the investor is willing to assume. We attempt to do this by first finding the right mix of asset classes, and then by identifying the optimum mutual fund managers.
10 Portfolio Construction Evaluate and Adjust Asset Allocations, on a Forward-Looking Basis, to Gain Exposures to Potentially Beneficial Sub-Asset Classes.On an ongoing basis, we will monitor the market environment to determine the optimal asset allocation for each portfolio. Research has shown that asset allocation explains 91.5% of the eventual outcome of an investment program. This is why we pay close attention to the allocation of the assets among the available asset classes. Throughout the years you will notice that our asset class allocations will remain relatively consistent. We will not move completely in and out of cash, fixed income, international, or domestic equities, as is commonly referred to as market timing.*Source: Financial Analysts Journal, May/June 1991.Due to rounding, figures may not equal 100%
11 Portfolio Construction Selecting Fund ManagersSelecting the ETFsThe final step in constructing a portfolio is the fund selection process. After determining the proper allocation among the asset classes, we determine which fund managers we will use. We utilize cutting edge software platforms, like Morningstar Direct (shown on this page) as part of the process of analyzing our managers. We decide the type of manager we are looking for, i.e. Large Value, and MStar Direct will show us where in the markets a manager has been investing over the past 6 months. We want to know that we are getting the type of manager we are seeking, and this helps us determine that. Once we have a handful of funds that appear to meet our needs, we will contact the managers and perform due diligence on the funds to find out if what has attracted us to the fund has been intentional or not. We also ensure that as a whole, the managers work effectively with one another in order to minimize risk. Finally, we select the mutual funds and allocate a portion of the portfolio to each one.
12 Combining Passive and Active in One Strategy By maintaining an active or tactical outlook via Quantitative Innovations we look to maximize the return per unit of riskWe are able to exploit the most attractive opportunities in various asset classes with the most appropriate vehicleQuantitative Innovations is a marriage between the two often divergent investment philosophies in the marketplace today…Active and PassiveBenefits of combining ETFs and Mutual FundsETFs are inherently tax efficientLow TurnoverInvestor’s own trading activity generates capital gains or lossesETFs have low expenses relative to other investment vehicles allowing investors to potentially save significantly on internal expenses over a long-term investment horizon12For Financial Advisor Use Only in One on One Presentations with Sophisticated Investors
13 A Three-Pronged Approach Standard Models (Hybrid Solution)Designed for qualified assets or situations where an investor does not have specific tax considerationsThe account may contain a robust mix of active mutual funds and ETFsTax Sensitive Models (Hybrid Solution)Designed for non-qualified assetsThe account may contain a robust mix of active mutual funds and ETFsETF-Only ModelsDesigned for qualified or non-qualified assetsAll asset class assignments will be filled with Exchange Traded FundsQI offers a three-pronged approach…
14 Monitoring the Portfolio… An Ongoing Partnership InvestorRe-evaluates risk tolerance and expectationsReviews Account and Quarterly PerformanceNotify Advisor and PAS Concerning Any Changes in Risk Tolerance and/or Time Horizon (Goals and Objectives)Park Avenue Securities Financial AdvisorHelp Client Manage Ongoing Expectations and GoalsMaintain Ongoing Dialogue with Client and PAS to Ensure Prudent Management and AllocationMonitor Portfolio and Interpret Any Changes to the PortfolioReview RecommendationsPark Avenue Securities - Investment Advisory Services TeamTeam with Advisor to Develop a Portfolio With Clients Specific Goals in MindMonitor PortfolioMake Recommendations to Change ETFs or Allocation When Research Would SuggestProvide Quarterly Performance Reports & Rebalancing as NecessaryThe purpose of this page is to discuss the roles and responsibilities of the parties involved after your account has been established.The Investor’s Role: Re-evaluate the tolerances and expectations established at the outset. Review performance and understand the investment decisions that were implemented. Communicate significant changes or life eventsThe Advisor’s Role: Manage the client’s ongoing investment experience and expectations. Monitor the portfolio and assist in evaluating performance.Role of Park Ave. Investment Advisory Team: Provide disciplined investment recommendations and maintain a prudent path to achieving desired outcomes. Report on performance and disseminate important investment information to advisors and clients.
15 Client Implementation Process Complete the Client QuestionnaireGenerate a Proposal Based on the Results From the Client’s QuestionnaireReview the ProposalImplement the PortfolioWe value your trust and confidence and thank you for the opportunity to serve youThe next steps towards opening up a diversified portfolio in-line with the your (client) investor profile are: first, we are going to walk through the questionnaire together. It is sixteen questions long, and when we are done it will tell us which of the ten investor profiles you (client) are in. Next, I (advisor) will take the client questionnaire and send it in to the Advisory Services Group. They are going to put together a recommended portfolio of mutual fund managers for us to review. Third, I (advisor) will receive the proposal from PAS and you(client) and I (advisor) will sit down to review it. Finally, we will send the paperwork into PAS and they will open the account, process any transfer paperwork or deposit checks, and then they will implement the portfolio. And then, going forward, all parties involved will continue to monitor the portfolio as we discussed previously.
16 About PAS/Guardian About Park Avenue Securities LLC Park Avenue Securities LLC is registered with the Securities and Exchange Commission as an investment adviser and broker dealer. Park Avenue Securities is located at 7 Hanover Square, New York, NY and 81 Highland Avenue, Bethlehem, PA Park Avenue Securities LLC is an indirect wholly owned subsidiary of The Guardian Life Insurance Company of America, a mutual company founded in Guardian has earned consistently high ratings from independent agencies such as Standard & Poor’s, Moody’s Investor Services and A.M. Best Company. Park Avenue Securities is a member NASD, SIPC.About The Guardian Life Insurance Company:A mutual insurer founded in 1860, The Guardian Life Insurance Company of America and its subsidiaries are committed to protecting individuals, business owners and their employees with life, long term care insurance, disability income, group medical and dental insurance products, and offer 401(k), annuities and other financial products. Guardian operates one of the largest dental networks in the United States, and protects more than six million employees and their families at 120,000 companies. The company has more than 5,400 employees in the United States and a network of over 3,000 financial representatives in more than 80 agencies nationwide.
17 DisclosuresPast performance is no guarantee of future results. Please note that investments in foreign markets are subject to special currency, political, and economic risks. ETF Managed Solutions performance results do not reflect management fees or expenses. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer or recommendation to purchase or sell a security.Joseph Capone is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 7 Hanover Square, New York, NY 10004, Securities products/services and advisory services offered through PAS, a registered broker-dealer and investment advisor. OmniMed Financial & Insurance is not an affiliate or subsidiary of PAS.PAS is a member FINRA, SIPC.