At Confluence Wealth Management we believe in a disciplined, long-term approach to investing. Our philosophy is primarily defined by a core/satellite strategy for investment management and the use of deeply diversified, global portfolios.
Our job, as your advisor, is to put you on the right path and guide you along your journey. We design custom portfolios using your investment policy statement and asset allocation, along with our macro view and select list of managers and funds. We then monitor, manage and review your portfolio in response to developments in the capital markets and personal events affecting your financial situation. Our goal, throughout this process, is to structure a deeply diversified portfolio that provides above average returns and reduced volatility over the long-term.
Core/Satellite Investing
Our investment management strategy combines portions of passive and active investing. We blend characteristics from both styles of management, selecting the positive aspects of each and transferring those benefits to the underlying portfolio. Passive vehicles, like index funds, offer low-cost, tax-efficient exposure to market indices. Active management, on the other hand, provides opportunities for prudent managers to outperform their benchmark on a risk adjusted basis. By designing a portfolio that integrates passive and active investments we capture the benefits of both management styles, and provide value to our clients over the long-term.
Diversification at Work
We believe that diversification should be broad in scope and therefore seek opportunities around the globe in developed and emerging economies. While the core/satellite process is focused on portfolio composition, our strategy must also include a method for managing portfolio risk. A common means for reducing risk in a portfolio is through the use of a variety of investments, better known as diversification. While diversification is widely accepted as necessary for long-term investing success, it is often ignored, misunderstood or incorrectly applied. Our multi-manager, multi-asset approach is designed to provide deeply diversified portfolios. Ultimately, our goal is to reduce the volatility of our client portfolios, smoothing the overall investing experience.
A Team Effort
Both core/satellite and global diversification philosophies plays out in our regular investment committee meetings. The purpose of the committee is to establish our forward-looking macro outlook and to determine our select list of managers and funds for use in client portfolios. Our top-down approach to the global markets provides the perspective that drives the rest of our investment process.
Our Strategy in Action
As our macro view develops, we revisit our core/satellite philosophy to determine which asset classes and sub-categories we think will benefit from active management and where we believe passive exposure is more appropriate. Additionally, we combine our macro view with our asset allocations as part of our tactical overlay, under and over-weighting specific asset classes or sub-categories to fine tune our portfolios.
Narrowing the Field
With an investment strategy established our attention turns to finding the right managers and funds for implementation. From each asset class and category we select a subset of options for use in client portfolios. Manager tenure, tax efficiency and transparency of process are examples of factors influencing how an active manager might end up on our select list. Similarly, expense ratio, overall volatility and the consistency with which a fund captures the return of its benchmark are some of the requirements for our passive managers. Each investment committee meeting provides the opportunity to re-evaluate our previously selected managers as well as explore new options for future investment.