1620's investment process utilizes diversification to limit unnecessary risks in investment portfolios. Client portfolios are typically diversified across asset classes, with fixed income and equity security blends that reflect the client's needs. Within each asset class, portfolios are further diversified across security type and industry. Finally, portfolios are diversified across individual securities to prevent too much exposure to any one company's prospects. Typically, no individual security accounts for more than 5% of the market value of a portfolio, with the exception of certain commingled funds, concentrated portfolios, inherited positions, and high quality fixed income securities (e.g., Treasuries).
Equity Security Selection
1620 relies on our internally generated security valuation process when constructing the stock portion of a portfolio. Our stock selection process includes both quantitative and fundamental analysis components. Individual security characteristics (e.g., valuation measures, dividend yield, earnings history and momentum) are evaluated to determine the attractiveness of the security relative to its peers and to alternative investment choices. More importantly, fundamental analysis is used to place quantitative measures in context, and to provide additional insight into the likelihood that the stock offers a compelling investment opportunity in the future as well. We ask ourselves: How is this company's business likely to benefit from longer term macroeconomic trends? What is the likelihood that recent financial success will continue throughout our ideal holding period (three to five years)? Are there unique factors that make the quantitative data less useful or misleading? This hands-on fundamental analysis differentiates our approach from portfolios generated by automated number-crunching investment programs.
Fixed Income Security Selection
As with our equity security selection process, our fixed income investment process utilizes both quantitative and qualitative analyses. When building the fixed income component of a client portfolio, 1620 evaluates a broad universe of fixed income security types, rather than focusing exclusively on traditional bonds. Our fixed income universe includes preferred securities, real estate investment trusts (REITs), and master limited partnerships, many of which may offer more attractive yield-oriented investment opportunities depending upon market conditions. After analyzing the quantitative yield characteristics of a potential holding, 1620 performs additional fundamental analysis. We ask ourselves: Are there macroeconomic trends in place that are likely to affect the relative attractiveness of this security? How attractive are current yield spreads relative to historical norms? Are current interest or dividend payments secure? Often, the fundamental research that we perform on equity securities helps inform our understanding of the prospects for individual fixed income securities.
Commingled Fund Selection
For many of our clients, commingled funds (mutual funds, ETFs) play an important role in their overall investment structure. Commingled funds may represent all or a portion of a client's assets. Particularly in the area of specialized investments, commingled funds can provide a diversified "one-stop shopping" for niche markets. Whether we are carefully selecting mutual funds for a client, or individual stocks and bonds, our investment process is very similar. We first start with state-of-the-art independent databases. On the mutual fund side, we screen based on items such as performance, risk attributes, fund manager tenure, current and historical sector weightings, assets under management, and the number of stocks held in the fund. We then perform in-depth analysis to confirm the fund's investment strategy and philosophy, and to examine whether the fund's strategy and investment process have been consistently and successfully applied throughout the life of the fund.