Business people having meeting in office building

Content provided by Rusty Vanneman, CFA, CLS Chief Investment Officer

In a recent commentary, I wrote about the “Five P’s” of the money manager’s due diligence process:

  • People
  • Philosophy
  • Process
  • Performance
  • Positioning

I followed that commentary with a more focused blog on the most important P: People.

In this commentary, I will discuss the next P: Philosophy. What is meant by an investment philosophy? In short, what does an investment manager believe about the markets and investing? About managing money? What is his or her ultimate goal? When picking managers, it’s important to understand their philosophies for several reasons, including:

  1. it will help you understand how and why they manage money the way they do
  2. it will help make sure you are comfortable with that philosophy

At CLS, our investment philosophy can be summarized this way: To help investors succeed, we believe in Risk-Budgeted, globally balanced ETF portfolios. Let’s break this statement down into more detail.

Helping Investors Succeed

Our ultimate goal is helping investors reaching their financial objectives. To accomplish that, we believe global, balanced, Risk-Budgeted ETF portfolios along with clear and consistent communication and investor education will help investors achieve success.

Risk Budgeting

At CLS, we build Risk-Budgeted portfolios. We believe for investors to reach their goals they need to assume risk and the best way to do so is to measure and manage it via Risk Budgeting. We also believe this is a better way to build balanced portfolios.

CLS uses Risk Budgeting because of three core beliefs:

  • All investors have a capacity to bear risk, and the best way to control risk is to measure it, rather than relying on a traditional stock-to-bond ratio.
  • Over the long term, investors are rewarded for bearing risk; having too little risk hurts investor returns.
  • Investment methodologies should be designed to pair a disciplined risk management system with a flexible approach to asset allocation. Doing so enables CLS’s portfolio management team put together risk-appropriate portfolios by looking at the broadest set of choices.

Global

We are global investors, investing not just in domestic securities but also overseas. We believe diversification across domestic and international assets provides improved risk-adjusted returns over time.

Balanced

We believe asset allocation — and keeping the proper balance between assets — works for investors. Investors stay in balanced portfolios longer than other portfolios and they have smaller “behavior gaps” (differences between investment returns and investor returns). Balanced portfolios offer a better experience for all parties involved.

ETFs

Though CLS does manage some mutual fund portfolios, our preference is to use ETFs whenever possible. We believe ETFs provide numerous benefits for investors, including lower costs, tax efficiency, and investment precision.

Summary

In the end, empowering advisors to help investors succeed is our ultimate goal. Whether it is through sound investment management by building reliable portfolios or through investment education and counseling through our communication, we want investors to be comfortable and stay the course.

P.S. On every weekly meeting agenda, the CLS Investment Team includes this list of what we believe:

We Believe:

  • We believe our ultimate goal is to help advisors and investors reach their investment objectives. This is accomplished through our relationships, portfolios, and communication/education.
  • We believe in risk-managed portfolios (especially those that are Risk Budgeted).
  • We believe in globally diversified, balanced portfolios.
  • We believe in the power of
  • We believe in client service and communication that is accessible, honest, and educational. “Plain talk; simple talk.”
  • We believe in constant professional growth. We are always trying to improve.
  • We believe in the power of teamwork. We help each other and hold each other accountable.
  • We believe that every basis point of performance matters. We play to win.