INVESTMENT PROCESS
To Create Our Heart of Liberty Portfolios We Use a Systematic Process
Step One
Find Fund Companies That Use a Traditional Fiduciary
Approach with Minimal Esg Involvement (TFA)
We begin by researching over 350 Mutual Fund Company’s involvement in Esg, with
particular emphasis on 5 areas:
- The depth to which Esg infuses the company’s investment process
- The involvement of ESG-dedicated staff
- The company's published belief in catastrophic man-made climate change
- Its membership in various Climate Change Initiatives
- Its Proxy Voting Record
We use these criteria to determine if the company’s funds should be eligible for
inclusion in our Heart of Liberty Portfolios; that is, are they suitable for an investor who
desires a Traditional Fiduciary Approach with Minimal Esg Involvement
A note of explanation: we use the term “Minimal” very deliberately. Not every fund
company we use will be as free of Esg influences as many investors might desire. We
believe that an investor should not let “perfect” be the enemy of “good.” At times it may
not be possible to find a quality fund in a particular category from a company with no Esg Involvement. We will then use a fund from a company with the most Minimal Esg
Involvement we can find that still satisfies our selection criteria in Step 2.
Step Two
Select Mutual Funds and ETFs
Once we have determined that a Fund Group meets our TFA criteria, we then
apply a wide variety of analytics to their individual mutual funds and ETFs before
inclusion in our Heart of Liberty Portfolios. These analytical measures include
Upside/Downside Capture, Beta, Position Overlap, Standard Deviation, Expense Ratio,
Investment Philosophy and Past Performance.
In plain English, we look for funds which have performed as consistently as possible and
with lower downside risk for their particular category, and which will complement each
other in different investment environments. We emphasize philosophy over past
performance; if you buy only performance, then you will sell performance, which means
you will often find yourself buying high and selling low. On the equity side, whenever
possible, we use funds that take a value-oriented, “Warren Buffett” type approach: they
attempt to buy stocks at attractive multiples of earnings, sales and cash flow, and they look at their purchase as if they are buying the whole company, and intend to partner
with management for an extended period.
Step Three
Determine Current Asset Allocation
Our Portfolios – After evaluating a Mutual Fund Management Company to determine if it
meets our TFA standards, and analyzing its funds for consistent returns and investment
philosophy, we then place those funds in their appropriate categories in our Asset
Allocation Portfolios.
We have five strategies designed for a range of investment objectives and risk tolerance:
Growth (70-100% Equities and Alternatives, 0-30% Fixed Income)
Moderate Growth (50-80% Equities and Alternatives, 20-50% Fixed Income)
Growth with Income (40-60% Equities and Alternatives, 40-60% Fixed Income)
Balanced (20-40% Equities and Alternatives, 60-80% Fixed Income)
Income with Growth (10-30% Equities and Alternatives, 70-90% Fixed Income)
The above represents target asset allocations of the advertised strategy . Individual clients' accounts may vary over time based on various factors, including the client's unique circumstances.
Optimal Allocation – For determining our Current Allocation (as of 11/21/23), we begin with our
Optimal Allocation, which is the mix of foundational asset classes which we believe have produced consistent risk and reward since 1995.
Approximately 80-100% of each portfolio is invested in these
“Strategic Asset Classes.”
Short Term Bonds and Cash |
Intermediate Term Bonds |
Long Term Bonds |
Real Estate Investment Trusts |
Large Cap Value Stocks |
Large Cap Blend Stocks |
Large Cap Growth Stocks |
Mid Cap Value Stocks |
Mid Cap Blend Stocks |
Mid Cap Growth Stocks |
Small Cap Value Stocks |
Small Cap Blend Stocks |
In addition, we can invest up to approximately 20% in “Tactical Asset Classes.” These are
areas of the markets which we think should be added to the portfolios depending on market cycles. They are not typically used as much as our Strategic Asset Classes, but we believe at times they may offer attractive potential over the next 1-3years. These include, but are not limited to:
High Yield Bonds |
Small Cap Growth Stocks |
International Stocks |
International Bonds |
Natural Resource Stocks |
Electric Utilities |
Current Allocation – We then adjust this backward-looking Optimal Allocation
according to valuations, interest rates, and market and economic conditions to arrive at our
Current Allocation for each portfolio.
Summary
Our Heart of Liberty Portfolios are created by:
- Using Fund Organizations which take a Traditional Fiduciary Approach
with Minimal ESG Involvement - Selecting funds from those organizations according to what we consider to be
meaningful analytics - Using those funds in our Asset Allocation Portfolios
- Adjusting our Optimal Allocation in our portfolios according to market conditions to arrive at our Current Allocation
To request information on a Heart of Liberty Portfolio tailored for your risk
tolerance and investment objectives, click here and in the Message box just write “I'd like information on Heart of Liberty Portfolios.”
Upside/Downside Capture – Upside/downside capture ratios show whether an investment outperformed (gained more or lost less than) a benchmark during periods of market strength or weakness, and if so, by how much.
Beta – Beta is a measure of a stock’s volatility relative to the market as represented by a benchmark (usually the S&P 500). The beta of the benchmark is 1.00, so a stock with a beta of 1.10 has been 10% more volatile than the market.
Position Overlap – The degree to which two different mutual funds may own the same securities.
Standard Deviation – Standard deviation measures the range of an investment's performance. The greater the standard deviation, the greater the investment's volatility.
Expense Ratio – A fund's expense ratio expresses the percentage of fund assets deducted each fiscal year for fund costs, which include management fees, administrative fees, operating costs, and sometimes even marketing and distribution costs incurred by the fund.
IMPORTANT DISCLOSURES
All investments are subject to risk, including loss. There is no assurance that any investment strategy will be successful. Asset allocation and diversification does not ensure a profit or protect against a loss. It is important to review the investment objectives, risk tolerance, tax objectives and liquidity needs before choosing an investment style or manager.
This Fact Sheet is not intended to be a client-specific suitability analysis or recommendation. Do not use this as the sole basis for investment decisions. Do not select an investment strategy based on performance alone.
The individual(s) mentioned as the Investment Manager(s) are Financial Advisors with Raymond James participating in a Raymond James fee-based advisory program. This is an investment advisory program in which the client's Financial Advisor invests the client's assets on a discretionary basis in a range of securities. Raymond James investment advisory programs may require a minimum asset level and, depending on your specific investment objectives and financial position, may not be suitable for you.
ASSET CLASS RISK CONSIDERATIONS
Every type of investment, including mutual funds, involves risk. Risk refers to the possibility that you will lose money (both principal and any earnings) or fail to make money on an investment. Changing market conditions can create fluctuations in the value of a mutual fund investment. In addition, there are fees and expenses associated with investing in mutual funds that do not usually occur when purchasing individual securities directly.
Equities: Investors should be willing and able to assume the risks of equity investing. The value of a client's portfolio changes daily and can be affected by changes in interest rates, general market conditions and other political, social and economic developments, as well as specific matters relating to the companies in which the strategy has invested. Companies paying dividends can reduce or cut payouts at any time.
Investing in emerging markets can be riskier than investing in well-established foreign markets. Investing involves risk and investors may incur a profit or a loss.
Fixed Income: All fixed income securities are subject to market risk and interest rate risk. If fixed income securities are sold in the secondary market before maturity, an investor may experience a gain or loss depending on the level of interest rates, market conditions and the credit quality of the issuer. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise. Please note these strategies may be subject to state, local, and/or alternative minimum taxes. You should discuss any tax or legal matters with the appropriate professional.
Sectors: Strategies that invest primarily in securities of companies in one industry or sector are subject to greater price fluctuations and volatility than strategies that invest in a more broadly diversified strategies. The Strategy may have over-weighted sector and issuer positions and may result in greater volatility and risk. Investing in small cap stocks generally involves greater risks, and therefore, may not be appropriate for every investor. The prices of small company stocks may be subject to more volatility than those of large company stocks.
While interest on municipal bonds is generally exempt from federal income tax, they may be subject to the federal alternative minimum tax, or state or local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Municipal bonds may be subject to capital gains taxes if sold or redeemed at a profit.
Commodities and currencies are generally considered speculative because of the significant potential for investment loss. They are volatile investments and should only form a small part of a diversified portfolio. Markets for precious metals and other commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.
Investing in REITs can be subject to declines in the value of real estate. Economic conditions, property taxes, tax laws and interest rates all present potential risks to real estate investments.
High-yield bonds are not suitable for all investors. The risk of default may increase due to changes in the issuer’s credit quality. Price changes may occur due to changes in interest rates and the liquidity of the bond. When appropriate, these bonds should only comprise a modest portion of your portfolio.
International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility.
Investing in emerging markets can be riskier than investing in well-established foreign markets. Investing involves risk and investors may incur a profit or a loss.