INVESTMENT MANAGEMENT

Overview

Our asset management platform aims to bring you access to sophisticated investment portfolios which are customized to your long-term financial goals and risk tolerance. Our model portfolios are designed to be both strategic and tactical, balancing long-term allocations alongside time-sensitive opportunities that result from market panics and dislocations. In scaling our models to our clients, we’ve also striven to ensure our strategies are executed in the most risk-conscious, cost-effective, and tax-efficient manner as possible.

What Does Our Asset Management Platform Look Like?

When we design investment portfolios for our clients, we typically blend one of our Core Portfolios and our Alternative Income Portfolio into a comprehensive allocation that is customized to individual risk-tolerance, liquid preference, and long-term financial goals.

We believe that people should have most of their liquid assets in diversified, high quality public equity and fixed income allocations, customized according to personal long-term financial goals and risk tolerance. To help our clients achieve that, we’ve built our global equity and fixed income strategies into five Core Portfolios, which are differentiated primarily by risk and return targets. Our Core Portfolios are designed to comprise the bulk of our clients’ investment portfolios and are primarily ETF-based, helping to keep them highly transparent, low-cost, tax-efficient, and diversified. In scaling our public market investment strategies this way, we can provide our clients with sophisticated, tactical allocations that are clear and customized to each client.

We also believe that exposure to certain liquid alternative assets can provide strong diversification benefits to public equity and fixed income portfolios, which is what our proprietary Alternative Income Portfolio aims to accomplish. This model is designed to complement our Core equity and fixed income portfolios, and targets a relatively high level of yield. The Alternative Income Portfolio invests in a variety of nontraditional assets, such as private core real estate, business development companies (BDCs), closed-end funds (CEFs), and non-agency mortgages. In addition to their diversification benefits, some of these assets – such as CEFs – operate in less institutionally traded markets, where investor sophistication is lower and opportunities to take advantage of clear dislocations can be higher.

What is Our Asset Management Philosophy?

Successful asset management systems are built on sets of rules and principles that help hold the decision-making process accountable. At Adaptive, we view our asset management philosophy as built on two sets of principles: our asset allocation philosophy and our investment philosophy.

Our asset allocation philosophy represents the framework on which we build long-term investment allocations for our clients. We believe that asset allocations should be customized to each client’s long-term goals and risk-tolerance, and that goals-based investing is the best way to keep clients focused on the long-term. These asset allocations should be transparent and clear, as it is easier for clients to feel more comfortable and confident throughout market cycles when they have a solid understanding of their investments and manager’s philosophy. Finally, costs should be kept as low as possible throughout investment portfolios, and across our portfolios and strategies we are adamant when it comes to keeping costs as low and transparent as possible.

Our investment philosophy represents the framework on which we make strategic and tactical decisions in our portfolios. In our experience, high volatility in investment portfolios can make it hard for people to focus on the long-term, and induce people to “cut their losses” at market lows, unable to handle any further pain. The tendency of investors to want to “get out” of the markets during bear markets and panics – oftentimes regardless of price – is a strong indication to us that we need to pay attention to the behavioral and emotional aspects of investing, as these represent both risks and opportunities for our clients. We believe a stable investment philosophy that attempts to mitigate some of the ups and downs of market cycles, and focuses on generating steady, consistent growth; we believe this can help our clients focus on the long-term, and avoid irrational decisions based on short-term market movements. We also believe that some of the best opportunities to invest come precisely when markets are in turmoil, and investors are willing or forced to sell high quality assets at distressed prices. Our philosophy is to generally take less risk during bull markets, so that when cycles turn and these opportunities do arise, our clients will be in a strong position to seize them. ­

What Can We Uncover in an Investment Review?

Before designing an investment portfolio for you, we will examine your situation to understand your long-term goals, risk-tolerance, liquidity needs, and investment time horizon. With this information, we can better design a comprehensive portfolio allocation that is customized to your individual long-term financial goals.

As part of this review process, we will perform a comprehensive review of your existing investment accounts and any relationship with your existing investment advisors. Below are some of the most common pitfalls we’ve seen investors make in designing their investment portfolios themselves or partnering with financial advisors:

Paying Too Much in Fees

There are often many layers of fees in the financial industry, all of which negatively impact your portfolio returns. In our review, we will provide a breakdown of the potential fees you are paying to your investment advisors, underlying fund companies, and brokers/market makers who facilitate security transactions

Taking Too Much Risk in Their Portfolios

During bull markets, markets often rise steadily higher, with drawdowns usually small and volatility quiet. These can lead investors to misunderstand the actual risks in their portfolios, and to panicked and impulsive decisions during the next economic downturn. In our review, we will provide an analysis of the market risk in your investment holdings, including stress tests across various market environments and comparisons against broad market indices

Keeping Too Much Cash on the Sidelines

Investors often find themselves sitting in excessive amounts of cash for a variety of reasons. Unfortunately, this can represent very real opportunity costs for investors, which compound significantly over time. In our review, if we will discuss ways of avoiding these opportunity costs, such as more conservative, liquid investments, or systematic processes for putting uninvested cash back into risk assets

Not Considering Tax Efficiency of Investments

Many investors and advisors are more concerned with investments’ gross returns over after-tax returns, which is what clients actually keep. When we review your holdings, we’ll conduct a review of your holdings to ensure that you are investing tax-efficiently, and not paying unnecessary income or capital gains tax from holding tax-inefficient investment vehicles (such as many equity mutual funds) or spreading assets inefficiently across qualified and nonqualified accounts

Not Following a Clear Investment Process or Philosophy

Investors and advisors often make the mistake of focusing too much on the merits of individual investments over how individual holdings fit in context of an overall portfolio or investment process. As part of this review, we will review how you or your current investment advisors manage risk, design strategic allocations, and make tactical decisions when opportunities arise

Not Asking Enough Questions of Their Investment Advisors

Many financial advisors build their practices on their AUM businesses, but often lack the infrastructure and in-house expertise for designing high quality asset management solutions for clients. As part of this review, we’ll review your current investment advisors, to determine that they:

  • Are following a rigorous investment process and philosophy

  • Are charging competitive fees

  • Have invested in resources for designing and maintaining client portfolios

  • Are effectively leveraging technology to scale research, trading, and portfolio monitoring tools across their clients’ accounts

  • Are fiduciaries, and not brokers

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 Investment advice offered through Adaptive Financial Consulting, LLC., a registered investment advisor.

3401 Enterprise Parkway, Suite 340 • Beachwood, OH 44122 • Office: 440-359-3455 • Fax: 440-359-3466

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