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MONTECITO
CAPITAL’S PORTFOLIO APPROACH:
Montecito
Capital Management’s (“MCM”) portfolio approach
is aimed at delivering institutional strategies to the average
investor. Large endowments of the likes of Yale or Harvard Universities
have immense advantages over the average investor, not just because
they retain the best investment teams to run the sophisticated
financial assets, but they also have access to many asset classes
typically not considered by retail-level investors. MCM was founded
on the principles of bridging this performance gap by employing
multiple strategies and assets that are geared to optimize the
risk-adjusted return frontiers of client portfolios. We attribute
our success to not anyone investment mantra, but rather in order
of priority, the following: investment class weighting, diversity
of investment classes, strategies pursued, manager’s alpha
(excess return over style benchmark), mean-variance optimization
of each security correlation attribute, periodic investment tactical
adjustments of core strategic allocations and tax efficiency.
It is paramount
for our portfolios have a bend toward neutral and absolute strategies,
thereby hedging against downside portfolio risk. This translates
into facilitating a layer of insulation in our Model Portfolio
from negative equity market moves. Our weightings toward alternative
and hedge mutual fund asset classes increased since 2007 to reflect
valuation and value at risk (VAR) concerns. These independent
investment strategies have the positive to returns based
on specific events or hedge trades in the throws of down market
trends.
Allocation
is determined only after we thoroughly analyze, research and develop
a comprehensive market outlook for each asset class in the portfolio.
This process encompasses broad macro trends, policies, economic
considerations, global trade factors which, in turn, drives micro
applications such as earnings, valuation ratios, and industry/sector
attractiveness within the prospective economic cycle. Inasmuch
as we don’t actively trade accounts, we do take heed of
the implications relating to institutional money flow bias on
market capitalizations and value/growth tradeoffs in conjunction
with industry/sector preferences.
MCM’s
approach is driven by absolute/neutral investment strategies as
well as participation in ten different asset classes with the
goal of reducing broader capital market volatility through extensive
diversification. Allocation to each asset class is tactically
adjusted to reflect the firm’s outlook on economic, sector
and specific asset class developments. Over a course of any year,
MCM’s investment returns are typically smoothed by successful
independent strategies which generally are either not highly influenced
by falling capital markets, or in some cases, actually benefit
from unfavorable developments in the capital markets.
MCM’s
Model Portfolio asset class investment vehicles often pursue more
than one strategy. The following asset classes and their underlying
securities are liquid and tradable: mutual hedge funds, alternative
strategies, pure equities, hybrid equities, private equity, multiple
strategy, fixed income, hybrid fixed income, convertible securities
and hard assets. We also utilities a currency exchange traded
fund groupings, but that is purely a hedging vehicle. We also
employ private hedge fund strategies for the qualified high-net
worth investor.
Using correlations, mean-variance analysis, value at risk and
hedging, the Model Portfolio is geared to produce steady returns.
We firmly believe many managers married to old-staid traditional
portfolio management practices of two asset classes (stocks &
bonds) and diversifying with styles of equity (growth vs. equity,
small vs. large cap) combined with bonds that may be laddered
in maturity are naïve. The majority of managers and advisors
adhere to the same portfolio management principles of the 50’s,
with the exception of adding more international holdings and real
estate investment trusts. It is our contention that the derivative,
currency, global market interdependency and technological trading
mechanism risk has sharply increased and more sophisticated approaches
must be pursued to safeguard three primary objectives: capital
preservation, income & appreciation.
