Our clients have a unique set of guals and parameters for risk that will detemrine the type of investments that are suitable for their portfolio. the end result is a mix of investment vehicles that reflects their values and interests. At KTCM, Inc., once we understand your values, needs and goals our customized investment process revolves around one word...TRUST!
At KTCM, we agree with the principle behind “asset allocation”, however it is our opinion that simply ‘allocating’ a client’s assets across a diverse mix of investments poses a hidden threat that might not be felt until a shift occurs with fundamental economic conditions. Therefore, we have gone one step beyond what is traditionally known as “asset allocation.”
Asset allocation could be effectively accomplished by purchasing one Large-Cap stocks from every industry in the United States to a investment portfolio. Unfortunately, this practice is the culprit behind greater than expected losses that many investors have experienced during the last recession. We believe that a more disciplined approach to achieve proper diversification is through the use of different investment styles, asset classes and portfolio managers
INVESTMENT STYLES
Maintaining a well-balanced and diversified portfolio is often a matter of “style” discipline. “Style drift” occurs when a manager selects investments that do not reflect the appropriate “class” for the portfolio that he or she is managing. Poor investment performance may be the result of style drift.
- Growth – A companies quarterly and annual earnings are the basis for investment selection, with a higher expectation of appreciation potential.
- Value – The practice of acquiring a quality stock at an under-valued price, relative to the company’s price-to-earnings and price-to-book ratio. Typically, a “value stock” is out of favor with the market.
- Market Oriented – The practice of designing a portfolio that reflects the “broader” market. Another method for accomplishing this style of investing is through “indexing”. The end result is typically a portfolio that is heavily correlated with the market, such as the “NASDAQ”, “DJIA” and the “S&P 500”; or a particular sector, such as the “technology”, “utilities”, “retail” or “health care”.
- Small Caps – Publicly traded companies with a “valuation” that is less than $2 billion dollars are generally classified as “small capitalization” stocks. These companies are characteristically more volatile, i.e. “risky” than larger, more established corporations.
ASSET CLASSES
A popular investment strategy that may be considered by many as “Investments 101” is known as “buy and hold.” There isn’t necessarily a danger with holding onto a good investment…so long as it continues to perform favorably by adding value within a portfolio. At KTCM, we define a “value-added” investment as one that gives the investor greater appreciation, with reduced risk.
The problem that we have with the buy and hold strategy is that on face value, it does not take into account changing economic, political, market and social conditions. To illustrate, imagine holding onto a long term government bond such as the 30-year Treasury bill, solely because it is considered to be a “safe investment.” At the same time, an increase in interest rates is generally considered to be a “defensive” move by the Federal Reserve Board during periods of an inflationary economy. Experiencing a higher degree of volatility (price fluctuation) is the risk that is associated with owning a portfolio with a heavy concentration in long-term government bonds. Hence the need for owning multiple asset classes:
- U.S. Stocks
- Fixed Income (Bonds, CD’s, Collateralized Mortgage Obligation Notes, Tax Free Municipal Bonds, Agency and Corporate Bonds)
- Emerging Market Stocks (International Stocks)
- Real Estate
- Alternative Investments (Commodities, Precious Metals, Oil & Gas)
Investment Management
