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What particular client is a fit for CLS’s Master Manager, and when they are a fit, how do we balance in our ETF expertise with other separate account securities like common stocks and individual bonds?

J.J. Schenkelberg, CFA, CLS Master Manager Portfolio Manager

A master manager client is someone who has an account over $500,000, and they desire more specialized investment options than we can offer with our other strategy offerings. A master manager client is typically more detail oriented and very interested in a little more visibility or control over their investment account. Maybe they want to see individual stocks and/or bonds in their account, have some specific holding requests, or are looking for tax efficiency.

A master manager account follows the same risk budgeting strategy that is described in our white paper. In this way, it is just like an ETF, AdvisorOne Fund, or any other strategy managed at CLS. If we are overweight international in the core strategies we will seek to overweight international investments in master manager. The only difference is the securities that are utilized and additional individual account attention that may come from specific holding requests or tax management.

A common analogy I use for our master manager clients versus ETF and AdvisorOne fund clients has to do with how individuals watch a football game. An AdvisorOne fund client is akin to someone who is only interested in what the final score is of the game. They are not as concerned with the details, but care about the final outcome. An ETF client is interested in watching the game more closely and not miss very much. A Master Manager client is watching the game for every play that is executed and what players are executing these plays. It’s all the same game. But, each individual is watching it differently. 

ETFs are utilized in all master manager accounts. ETFs provide diversification and access to asset classes that are not easily accessible through individual securities, as well as additional flexibility. Individual bond portfolios typically include higher quality bonds that are primarily held to maturity. We can diversify the bond positions with ETFs by accessing international bonds, high yield securities, floating rate bonds and other assets that are not easily accessible to individual bond portfolios.

On the equity side we utilize individual stock portfolios that primarily invest in U.S. securities. With ETFs we can diversify outside U.S. securities into areas such as international equity, real estate, master limited partnerships, and small cap equity.

ETFs also provide more flexibility. We can adjust our portfolio over and under-weights by trading a couple ETFs that each hold hundreds of individual securities. Whereas, with a portfolio that utilizes all individual securities there would need to be hundreds of trades to re-position the asset allocation of the portfolio. 

The views expressed herein are exclusively those of CLS Investments, LLC, and are not meant as investment advice and are subject to change. No part of this report may be reproduced in any manner without the express written permission of CLS Investments, LLC. Information contained herein is derived from sources we believe to be reliable, however, we do not represent that this information is complete or accurate and it should not be relied upon as such. All opinions expressed herein are subject to change without notice. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. You should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. You should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not a guide to future performance.
An ETF is a type of investment company whose investment objective is to achieve the same return as a particular market index. An ETF is similar to an index fund in that it will primarily invest in the securities of companies that are included in a selected market index. An ETF will invest in either all of the securities or a representative sample of the securities included in the index.
There are risks associated with bonds. These risks include, but are not limited to, the same interest rate, inflation, and credit risks associated with the underlying bonds owned by the portfolio and your return of principal is not guaranteed. High yield bonds are subject to numerous risks including higher interest rates, economic recession, and possible deterioration of the junk bond market, possible downgrades and defaults of interest and/or principal. High yield bond prices tend to fluctuate more than higher rated bonds; their values will generally fall as interest rates rise and are affected by short-term credit developments to a greater degree than higher rated bonds.
Foreign securities may be subject to unstable international political and economic conditions, currency fluctuations, foreign controls on investment and currency exchange, withholding taxes, a lack of adequate company information, less liquid and more volatile markets, and a lack of governmental regulation which subject foreign securities to risk.
U.S. Treasuries are short-term debt securities issued by the U.S. government to fund its operations. T-bills usually mature anywhere from one month to one year after they’re issued. Instead of making periodic interest payments, T-bills are sold at a discount and rise to their face value at maturity.
2397-CLS-12/13/2013