A Special Bulletin
This edition of Occam’s Razor is dedicated to informing our clients and readers about upcoming advancements McLean Asset Management Corporation will be implementing over the coming months to our portfolios and operations. This special bulletin is divided into three parts: Allocation Optimization, New Portfolio Offerings, and Technology Updates.
McLean Asset Management Corporation’s investment committee has recently completed an extensive review of our portfolio allocations. You have no doubt heard us say repeatedly that asset allocation determines 96% of portfolio returns. Accordingly, we focus heavily on the weightings of the individual asset classes that com-prise our portfolios. From time to time our invest-ment committee recommends slight changes to our allocations to adjust to shifts in the global capital mar-kets. This isn’t to say that our investment philosophy of capturing the market return in the most efficient way possible has changed. On the contrary; we have identified new investment options that have become available which allow us to more precisely manage portfolio risk exposure within our equity allocations and more effectively apply variable credit and maturity principals within our fixed income allocations.
The committee has determined that slight changes were necessary to optimize the risk/return characteris-tics within each allocation. They are:
- International exposure has increased from 25 to 35 percent of our allocation
- Broader application of variable credit and maturity research
- Allocations are more streamlined
Without going into too much detail, here’s an expla-nation of why these changes make sense. World stock market capitalization (the size of each country’s stock market in proportion to the world) is constantly changing and global capital naturally migrates to desti-nations offering the most attractive risk-adjusted ex-pected returns. Currently, the United States represents roughly 49% of the world stock market. We are sim-ply adjusting our international exposure to reflect global realities without giving up our home bias.
Just like equity markets change daily, so too do yield curves. The implication is that having a static maturity and credit can rarely be optimal. We have always applied strategies that consistently optimize our client’s maturity and credit exposure. With these changes, we are simply expanding our ability to utilize the latest variable credit and maturity research. Our new fixed income allocation offers a more streamlined, cost effective portfolio with greater diversification and a greater emphasis on research that has been shown to increase expected return.
There are benefits beyond the expected risk/return tradeoff of our allocation optimization. Our portfolio changes will result in a reduced number of mutual funds we use which means the cost of re-balancing will be lower; the new funds used also have a lower expense ratio. These benefits are no more than a few basis points. But the lower the cost of investing, the more you keep. Those small savings become much more pronounced over a longer investment period.
You will see these portfolio changes implemented over the coming months and we encourage you to contact your advisor if you have any questions or concerns.
New Portfolio Offerings:
Based on demand from our clients, we are now offer-ing portfolio allocations with embedded social and sustainability screens. Socially and environmentally responsible investing has historically been and re-mains difficult to implement while simultaneously maintaining our investment philosophy and meeting our desired value and size targets. New market offer-ings have allowed us to create allocations with these screens embedded. However, we aren’t able to offer a complete social or sustainability portfolio at this time. Instead, we’ve made a best effort combining both of these screens to create portfolios that still meet our expected risk and return requirements.
Please contact your advisor if you have a desire to align your beliefs with your portfolio.
Around this time last year we began a very difficult transition to our new portfolio accounting software system. Transitioning historical data into a new ‘language’ while maintaining its integrity is a very tedious process, and it has taken us almost a year to complete. A limited version that does not have historical data has been in use since mid-November 2011.
We are happy to announce that we are wrapping up our conversion process and have a tentative deadline of September 30, 2012 to be fully operational on the new system, historical data and all. Our new software will provide our clients with a better user interface and experience when monitoring and reviewing their accounts. We’re even rolling out a virtual storage vault which will allow clients to store critical documents in a secure environment.
As always, feedback on our process and offerings is welcome. We wish you the best for the remaining months of the summer.
Until next time – Occam’s
McLean Asset Management Corporation (MAMC) is a SEC registered investment adviser. The content of this publication reflects the views of McLean Asset Management Corporation (MAMC) and sources deemed by MAMC to be reliable. There are many different interpretations of investment statistics and many different ideas about how to best use them. Past performance is not indicative of future performance. The information provided is for educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy or sell securities. There are no warranties, expressed or implied, as to accuracy, completeness, or results obtained from any information on this presentation. Indexes are not available for direct investment. All investments involve risk.
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