Investment Process

           While we view active management with extreme skepticism, passive investing is not a term we favor, either.  Investing properly means isolating and controlling as many variables as possible while embracing the natural growth the markets provide, and doing so requires a rigorous approach.  Passive vehicles help us isolate and control variables, and so they are our first choice when seeking exposure to an asset class.  However, to us there is no such thing as “passive investing,” at least not if you are a fiduciary, and so the investment process still remains complex.

           At Frontier, our process involves finding answers to the following questions along the way to constructing well-diversified and thoughtful portfolios for our clients:

Questions to answer in the portfolio construction process:

  • What defines an asset class and is each asset class investable?
  • Has the asset class offered a reasonable level of return relative to volatility, and what do we expect from it over the long-term?
  • How does the asset class correlate to other asset classes?  Does it diversify or concentrate a portfolio?  What do we expect going forward (long-term)?
  • What is the tax treatment of each asset class and does its tax treatment affect its candidacy in the portfolio?
  • What weight do we assign to each asset class in the portfolio?
  • Are any of the asset classes currently under extreme duress or approaching a bubble scenario such that we may not want to have exposure to it in the current environment?

Questions to answer in the portfolio implementation process:

  • What are the various indexes that represent each asset class and which one is superior?
  • What are various vehicles that give us access to the desired index/asset class and which is superior?  How do we determine which is superior?
  • How do we get exposure to an asset class when there is no adequately representative index?
  • Once the portfolio structure and vehicles have been determined, how do we achieve fully-invested status – all at once, dollar cost averaging, some other method?
  • How do we properly rebalance the portfolio as the markets gyrate?
  • What kind of tax trading methodology should we employ?
  • How do we measure our performance and determine if and when changes should be made?

           Additional time is spent researching the broader trends in the global economy that we should be aware of as investors and fiduciaries.  Some trends may offer strategic investment opportunities while others may lead to risks we need to avoid.  In any event, research to us is an evolutionary exercise that never stops.