Step 1 Equity/Fixed Income Positioning

Arcataur utilizes fundamental research and valuation discipline to determine the relative attractiveness of stocks versus bonds.  Key factors we analyze include corporate earnings, economic statistics, interest rates, expected inflation rates and the implied risk premium between stocks and bonds.  The 45% to 75% equity target for the core Arcataur Managed Balance Portfolio was set after extensive research, utilizing historical data and data from our own previous management experience. Based upon market conditions and each client’s investment objectives and risk tolerance, an asset allocation range and target is set to balance risk and return for that investor.  Each of our balanced portfolios has distinct risk and return characteristics.  The conservative Managed Balance range seeks to achieve moderate, long-term capital appreciation with higher current income, while recognizing the possibility of moderate fluctuation in year-to-year market values.  The equity component mid-point target is 50%, and the fixed income component mid-point target is 50%.  The core Arcataur Managed Balance Portfolio seeks to achieve a moderate level of current income, combined with above average capital appreciation with moderate risk of loss of principal.  The equity component mid-point target is 60%, and the fixed income component mid-point target is 40%.  The aggressive Managed Balance range seeks to achieve high, long-term capital appreciation with lower current income while recognizing the possibility of substantial fluctuation in the year-to-year portfolio returns, based on market conditions.  The equity component mid-point target is 75% and the fixed income component target is 25

 

Step 2 Macro Assessment

Our portfolio managers ascertain the current state of financial markets and economies around the world.  We evaluate many factors to determine where we are in the business cycle along with potential future events that may impact financial assets including global GDP and corporate earnings growth prospects, monetary and fiscal policy, inflation expectations, and input costs to gain insight into the investment climate.  When our models and fundamental analysis indicate stocks are more attractive, we are near the upper end of the equity target range for the particular Arcataur Managed Balance Portfolio.  Conversely, when bonds are favored, we are near the lower end of the equity target range for the particular Arcataur Managed Balance Portfolio.

 

Step 3 Portfolio Construction

The equity component of the Arcataur Managed Balance Portfolio will primarily be the Arcataur Large Capitalization Equity Portfolio, utilizing the same investment process to construct a high quality, blue chip stock portfolio which offer growth opportunities at a reasonable price.  Broad equity index exchange traded funds are utilized to broaden stock diversification including Small and Mid-Capitalization domestic stocks, along with Developed and Emerging Market International exposure to maximize diversification. The fixed income component is the Arcataur Investment Grade Fixed Income Portfolio, offering the same investment style in the separately managed account format, focusing on treasuries, agencies, corporate bonds, preferred stocks, certificates of deposit as well as municipal bonds for tax sensitive clients.  The targeted average portfolio credit rating is A.