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At Sellwood, we don’t believe in relationship managers. Instead, our clients interact directly with the experienced professionals who make investment decisions for them. No intermediary is necessary. We maintain an 8-to-1 client-to-advisor ratio and nurture lasting relationships between clients and the experienced investment professionals who actually design their portfolios.
This approach is in contrast to the “scale” model used by most other investment advisory firms, in which they seek ever-higher revenues and lower costs of service. We avoid scale deliberately — the pursuit of scale is an inherent conflict of interest between advisor and client. A pursuit of scale produces either cookie-cutter portfolios that are unresponsive to a client’s unique needs, or inferior client service, delivered by junior people. You’ll see a pursuit of scale whenever you notice a model portfolio, a “team-based” advisory approach, a relationship manager, or an inexperienced junior advisor meeting with clients. These traits all go together — a model portfolio is designed to serve many clients at once, and because it is generic, an experienced investment professional is not necessary to explain it.
Our independence and freedom from conflicts of interest mean that we sit on the same side of the table as our clients, and that our recommendations and decisions are always designed to benefit our clients.
Philosophically, we believe it’s best for clients to understand their portfolios. Understanding what you own is the best risk control. Even when clients entrust Sellwood with discretion for implementing a portfolio, we are highly proactive, transparent, and educational in explaining the portfolio, and any changes and their rationale to the client. Informed clients make better decisions, and they have better investment portfolios.
Our success in creating customized portfolios is part of what sets Sellwood apart. Our four-part process for designing portfolios is as follows.
Our investment process always starts with the client. We believe that a thoughtful and thorough Investment Policy Statement (IPS) is not only an essential governance tool for clients, but also essential direction to Sellwood as their portfolio manager. Because all of our investment work for clients is customized to their individual circumstances, it is only with a comprehensive accounting of each client’s unique objectives and constraints that we are able to fully understand our clients’ needs.
After evaluating a client's specific investment objectives, we can assess the asset classes that would make sense for their portfolio. A customized asset allocation study determines the allocation among these asset classes that might best fit a client’s unique needs, such as return objective, established risk parameters, liquidity needs, spending policy, and constraints unique to the client.
We believe that genuine diversification across multiple asset classes with differing objectives and return patterns is essential for all long-term portfolios. Our experience grounds our understanding that the optimal asset allocation for any client is as much art as science, and while we employ industry-leading analytical tools, we know better than to delegate asset allocation work fully to computers or models.
Sellwood's asset allocation assumptions are a key differentiator in our process. We develop and publish our own proprietary, market-driven, and forward-looking return, risk, and correlation assumptions for each asset class annually. Read about our current Capital Markets Assumptions.
The final step in constructing an investment portfolio is to populate it with the best investments we can find. Because we offer no proprietary products, this step of the process is based entirely on our own objective research of the industry’s best offerings. A typical Sellwood portfolio will include a diversified mix of active and passive strategies, including low-cost index funds for reliable asset class exposure, diversifiers that truly diversify, and active management fees paid only to proven managers that we expect to deliver alpha net of their fees.
Once a portfolio is in place, we implement and manage the portfolio according to each client’s unique Investment Policy. Responsibility for rebalancing or changing the manager lineup or asset allocation within Policy ranges falls to the experienced advisors who know clients best. At Sellwood, our junior team members assist in the process, but they never manage clients’ portfolios behind the scenes.
While we entrust portfolio design and management to our experienced professionals, our Investment Committee reviews their work during regular client review meetings. During this meeting, our whole team will examine one client’s portfolio in-depth. This review creates a forum for other experienced members of our team to ask questions of the client’s direct advisory team and offer ideas for improving it. Several client portfolio improvements have arisen from this review process.
Identifying active investment managers capable of providing superior returns, reliably and net of their fees and costs, is notoriously difficult, and we approach the task with humility. Through research and our collective experience and judgment, we have developed a process for spotting managers most likely to outperform peers and benchmarks over long periods of time. In no particular order, these are the factors we consider when selecting managers:
Stable and Consistent Organizations and Portfolio Management Teams. Without organizational stability, we cannot have confidence that a successful process or result can be repeated.
Ability to Explain the Value Proposition. A manager must be able to articulate their rationale for a strategy to consistently outperform its benchmark and explain which markets the strategy should be expected to outperform or underperform.
Assets under management. We monitor the growth of assets under management closely and prefer that our clients invest with investors, not asset gatherers. We are mindful that manager incentives can change, adversely to the client, as their assets grow.
Low fees. Fees make it harder to deliver superior performance. We monitor fees closely and wherever possible negotiate lower fees on behalf of our clients. Investing with high-fee managers is in conflict with our philosophy of investing with humility.
High Active Share for Active Managers. We believe that managers must be truly active to earn active-management fees.
Reasonable tracking error. While we don’t believe that tracking error determines success of a given strategy, we do believe that reasonable tracking error makes it easier to stay invested with a manager during inevitable periods of underperformance.
Low turnover. We believe that strategies based on longer holding periods properly align managers to our clients’ investment horizons, decrease trading costs, and provide opportunity for outperformance, given the increasingly short-term nature of markets.
It’s important to note that we view these factors as elements of successful investment strategies, not items on a checklist. We do not eliminate managers just because they don’t meet one arbitrary criterion. This process forces us to rely on our judgment and expertise more than on quantitative screens, and we strongly believe that it is the best way to identify future outperformers. To learn more about our process, see our Common-Sense Investment Manager Research philosophy.
Identifying active investment managers capable of providing superior returns, reliably and net of their fees and costs, is notoriously difficult, and we approach the task with humility. Through research and our collective experience and judgment, we have developed a process for spotting managers most likely to outperform peers and benchmarks over long periods of time. In no particular order, these are the factors we consider when selecting managers:
Without organizational stability, we cannot have confidence that a successful process or result can be repeated.
A manager must be able to articulate their rationale for a strategy to consistently outperform its benchmark and explain which markets the strategy should be expected to outperform or underperform.
We monitor the growth of assets under management closely and prefer that our clients invest with investors, not asset gatherers. We are mindful that manager incentives can change, adversely to the client, as their assets grow.
Fees make it harder to deliver superior performance. We monitor fees closely and wherever possible negotiate lower fees on behalf of our clients. Investing with high-fee managers is in conflict with our philosophy of investing with humility.
We believe that managers must be truly active to earn active-management fees.
While we don’t believe that tracking error determines success of a given strategy, we do believe that reasonable tracking error makes it easier to stay invested with a manager during inevitable periods of underperformance.
We believe that strategies based on longer holding periods properly align managers to our clients’ investment horizons, decrease trading costs, and provide opportunity for outperformance, given the increasingly short-term nature of markets.
It’s important to note that we view these factors as elements of successful investment strategies, not items on a checklist. We do not eliminate managers just because they don’t meet one arbitrary criterion. This process forces us to rely on our judgment and expertise more than on quantitative screens, and we strongly believe that it is the best way to identify future outperformers. To learn more about our process, see our Common-Sense Investment Manager Research philosophy.