Domestic Equity

Definition: Domestic Equity includes index funds, mutual funds, or other types of funds which invest only in U.S. domestic stocks (and not bonds).

Investment Case:   Stocks (or equities) have historically served as a primary driver of growth and appreciation in investment portfolios.  Simply put, they provide the highest potential returns, and over the long term, no other type of investment tends to perform better.

Cost: The cost for the long term performance of investing in stocks is the volatility (up and down movements in price) and draw-down (prolonged down swings).  The S&P 500, a domestic equity index has experienced multiple draw downs in excess of 40%.  

Applied Academics:  Academic research shows that exposure to different areas of the stock market have performed better than others.  Namely, exposure to smaller companies and companies priced at lower valuations have performed better historically.  We tilt towards small-cap and value in our domestic equity exposure as well as screen for companies with higher profitability, another academically proven indicator of superior returns.

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Noah Schwartz CFP
Credit and Fixed Income

Definition: Fixed income is a type of investment in which real return rates or periodic income is received at regular intervals and at reasonably predictable levels. Credit market refers to the market through which companies and governments issue debt to investors in the forms of bonds, notes and other financial vehicles.

Investment Case: Fixed-income and credit investments can be used to diversify one's portfolio, as they may pose less risk (volatility) than equities and derivative investments and have been historically non-correlated.

Cost: The cost for lower volatility is historically lower performance compared to stocks. Bonds and fixed income are subject to credit and interest rate risk. Unbeknownst to many, their returns in high inflationary environments have matched the draw downs of historical equity markets on a real basis.

Applied Academics: Academic research shows that the primary driver of bond returns are credit quality and duration. We look at global bond allocations in sovereign, corporate and credit serving as a ballast to volatility in other areas of the portfolio.

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Noah Schwartz CFP
International Equity

Definition: International Equity includes index funds, mutual funds, or other types of funds which invest only in non-U.S. stocks (and not bonds). International equities can be further classified into 'developed' and 'emerging' markets.

Investment Case: International stocks have historically offered diversification potential for a portfolio of US stocks and may offered lower relative valuations by some measures. Additional they provide geographic diversification at a minimum in a global based economy.

Cost: The cost for the investing in international equities is that they may trail domestic equity returns and their diversification benefit may not be as significant in the past as correlations have increased. They can also suffer similar draw downs to domestics equities and an investor may lack familiarity with some of the holdings.

Applied Academics: The authors of recent Harvard paper, found here: Academic research find that "being globally diversified is basically making a bet that the global economy will be in a better position in 20 or 30 years than it is today and that is safer than betting on any one specific economy" In certain international markets we can screen against state controlled enterprises and also add exposure to countries based on their relative 'cheapness".

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Noah Schwartz CFP
Real Assets

Definition: Real assets derive their value from their own intrinsic and inherent qualities.  Examples include real estate and commodities.  We also consider real return bonds (TIPS) as real assets.

Investment Case:   Real assets, as broad asset class are helpful in hedging portfolios, may offer lower volatility than stocks and can address concerns regarding  inflation, currency prices or other macroeconomic factors. 

Cost: The cost for investment in real assets may be the opportunity cost for investing elsewhere.  Some real assets are hard, if not impossible, to gain cost effective exposure to, this leaves a smaller universe of investable real assets to most individuals. 

Applied Academics:  Real assets have measurable diversification benefits but may lack liquidity or the ability to access the entire asset class.   We look at opportunities in global real estate and in inflation protected government securities. 

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Noah Schwartz CFP
Global Momentum

Definition: Momentum is based on the Newtonian notion that a body in motion tends to stay in motion. In investing it refers to the tendency for price to move in the direction of a trend.

Investment Case: Momentum is classified into cross sectional (assets vs other assets) and time series (assets vs themselves). Cross sectional momentum can help identify which assets/asset classes are performing better compared to each other while time series momentum attempts to disengage from markets that are falling.

Cost: The cost for momentum strategies is the possibility of patterns of return that differ from traditional indexes. In addition, momentum carries no assurances that a particular trend may continue other than the behavioral finance theories developed by academics.

Applied Academics: The academic finance literature documents the efficacy of momentum strategies across time periods, markets and asset classes. Momentum strategy is best employed on a quantitative, rules-based basis

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Noah Schwartz CFP
Alternative Investments

Definition: An alternative investment is an asset that is not one of the conventional investment types, such as stocks, bonds and cash. Alternative investments include private equity, hedge funds, managed futures, real estate, commodities and derivatives contracts.

Investment Case : Alternative investments typically have a low correlation with those of standard asset classes, which makes them suitable for portfolio diversification. Some 'real assets' can be classified as alternative investments.

Cost: The cost of access to alternative investment assets, managers or strategies will typically be higher than of traditional asset classes. They may also offer reduced liquidity.

Applied Academics: The category of alternative investments is varied, broad and diverse. Many large institutional funds such as pensions and private endowments use alternative assets and strategies. This 'endowment model' allocates a significant portion of assets to non-traditional asset classes. We focus on research found in the managed future space, showing large diversification benefits especially in down markets.

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Noah Schwartz CFP