Arcataur Managed Balance Portfolio
The Arcataur Managed Balance Portfolio offers investors a separately managed account which seeks to preserve capital during difficult market periods while allowing growth opportunity in good market conditions. The investment objective is to seek the competitive returns of the Arcataur Large Capitalization Equity Portfolio in conjunction with the lower volatility characteristics and the current income generated from holding fixed income investments of the Arcataur Investment Grade Fixed Income Portfolio.
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Allocation to different asset classes and markets will have the largest impact on the growth of your investments over time; we work closely with clients to establish and maintain an asset mix that reflects their lifestyle, aspirations, liquidity needs and growth objectives
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Core stock/bond range is 45% to 75% equities; more conservative or aggressive ranges can be established to achieve specific client needs
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Relative stock/bond attractiveness model and fundamental analysis guide position within the range
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Macro assessment done on a team approach focusing on corporate earnings, interest rates and financial risk premium
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Bond exposure follows Investment Grade Fixed Income Portfolio
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Direct common stocks will primarily be Large Capitalization Equity Portfolio
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Small capitalization, mid-capitalization and international equity diversification will be included primarily through broad index-based exchange traded funds
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Clients benefit from active asset management and active asset allocation
Investment Strategy
The Arcataur Managed Balance Portfolio offers investors a separately managed account which balances the growth opportunity of the equity markets with the stability and income generation of the fixed income markets We view it as a core investment vehicle for a wide range of clients. It is ideal for investors who seek growth over time and also desire current income. This investment discipline provides flexibility and customization to meet unique client needs. The Arcataur Managed Balance Portfolio takes advantage of the concept of the Modern Portfolio Theory - blending volatile equity assets with less volatile fixed income assets over long periods of time to achieve an appropriate balance between return and risk. History has shown that a well-diversified portfolio will achieve solid results without taking on excessive risk. Arcataur has developed a market value discipline that assists us in determining the relative attractiveness of stocks versus bonds on a real time basis. Key factors include corporate earnings, interest rates, inflation expectations and the implied risk premium between these asset classes. The Arcataur Managed Balance Portfolio utilizes Core target weights and ranges for moderate risk tolerance clients. The specific investment objective and risk profile of the client may necessitate Conservative or Aggressive target weights and ranges, or specifically tailored weights and ranges. We utilize our fundamental analysis and valuation discipline to determine where to positions portfolios within the client’s stated range. For instance, in Core portfolios, when our analysis indicates stocks are more attractive, we will be near our upper end of the range for equities (75%). Conversely, when bonds are favored, we will be near the lower end of the range for equities (45%).
The equity component of the Arcataur Managed Balance Portfolio is the Arcataur Large Capitalization Equity Portfolio, utilizing the same process to achieve a separately managed account consisting of high quality, blue chip stocks, along with broad equity exchange traded funds to diversify stock exposure. Similarly, the fixed income component is the Arcataur Investment Grade Fixed Income Portfolio.
Investment Process
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.