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We use the following methods of analysis in formulating our investment advice and/or
managing client assets:
Fundamental Analysis. JLAM deploys an investment style that emphasizes a core portfolio of large capitalization domestic equities and investment grade bonds of intermediate term duration. We begin our analysis with a top-down approach by evaluating macroeconomic variables to forecast major factors that affect the overall valuations of financial assets. These factors include economic growth, monetary policy, fiscal policy, interest rates, inflation, taxation, the regulatory environment, and corporate earnings. We further refine this approach to determine which sectors of the economy should do better or worse than the overall economy. We then incorporate fundamental valuations to determine which major sectors of the financial markets we plan on overweighting, equal-weighting, or underweighting relative to the benchmark S&P 500 Index.
Our final step is to use a bottom-up approach. For equities, our universe of companies includes the S&P 500 and those companies with S&P 500 characteristics but which are not in the Index. We evaluate these securities to determine which ones to buy; sell or hold. We attempt to measure the intrinsic value of a security by looking at economic and financial factors to determine if the company is underpriced (indicating it may be a good time to buy) or overpriced (indicating it may be time to sell). We look for companies that appear underpriced relative to their growth rates and tend to prefer companies that create shareholder value either through dividend growth, share buybacks or debt repayments. In addition, we utilize third party research to support and complement our own analysis. Selected securities are included in portfolios based on our predetermined sector weightings. Equities are sold from the portfolios based on one or more factors. These include; a change in the underlying fundamentals of the company, the stock reaches or exceeds our target price, a change in our sector weighting, the stock becomes too large a position in a portfolio and/or a shift in our view of the secular trend of equity prices. Our typical holding period for equities is four years, but changes with market conditions and the volatility of individual equities in the portfolio.
For fixed income, our universe includes publicly traded foreign and domestic corporate, government, government agency, and municipal securities that are rated investment grade by at least two of the ratings agencies. (In cases of coverage by just one rating agency, that rating must be investment grade.) We analyze inflation expectations, credit spreads, monetary policy, fiscal policy and economic conditions to determine the relative attractiveness of the major bond categories. We then analyze income, balance sheet and cash flow statements to determine which securities to buy. In addition we utilize third party research to support and complement our own analysis. Bonds are typically held to maturity but may be sold before maturity if the underlying fundamentals deteriorate, the valuation exceeds our fair value estimate, or if there is a more attractive alternative.
Technical Analysis. We analyze past market movements and apply that analysis to the
present in an attempt to recognize recurring patterns of investor behavior and potentially
profitable entry and exit points for both individual securities and the market as a whole. We also regularly review charts of market and security activity in an attempt to identify directional trends and to predict how long the trend may last and when that trend might reverse.
Risks for all forms of analysis. Our security analysis methods rely on the assumption
that the companies whose securities we purchase and sell, the rating agencies that review
these securities, and other publicly-available sources of information about these securities,
are providing accurate and unbiased data. While we are alert to indications that data may be incorrect, there is always a risk that our analysis may be compromised by inaccurate or
misleading information. Further, our fundamental and technical analysis does not mitigate the risk of loss in both individual securities and portfolios as a whole that the client should be prepared to bear.
INVESTMENT STRATEGIES
We use the following strategy(ies) in managing client accounts, provided that such
strategy(ies) are appropriate to the needs of the client and consistent with the client's
investment objectives, risk tolerance, and time horizons, among other considerations:
Equity Strategy: We attempt to add value for clients by purchasing a diversified portfolio of stocks from our buy list which underweight the major S&P 500 sectors we feel are overvalued or have poor relative prospects based on our analysis of future economic trends and overweighting major S&P sectors we feel are undervalued or have good relative prospects based on our analysis of future economic trends. Portfolios typically have approximately 30 stock positions and sector divergence from the S&P 500 does not typically exceed 50%. In addition, we may use Exchange Traded Funds (ETFs) to add to sector positions or to add to asset classes that we feel are appropriate to maximize returns and/or reduce portfolio volatility. These include but are not limited to: small, mid and large-cap equities, international equities, emerging market equities, and sector and industry specific equities. In addition, we may use ETFs that invest in commodities, currencies and that use leverage, derivatives and short sales. The additional asset class ETFs do not typically exceed 25% of the portfolio. Accounts which fall below our minimum asset level may have an ETF concentration of as much as 100%.
Fixed Income Strategy: We use bonds in our portfolios when appropriate, to provide income and reduce volatility. The bond portion of a portfolio is typically laddered over an intermediate term (4-7 years) with individual bond positions generally not exceeding 5% of the portfolio, and diversified so as not to be overly concentrated in a company or sector. Our goal is to preserve our clients' capital, while maintaining the advantages of income stability, higher yield and potential appreciation that longer-term bonds may afford. In addition, we may use ETFs or mutual funds to add bond positions in smaller portfolios and/or to add exposure in areas other than investment grade bonds. These may include, but are not limited to: inflation protected bonds, foreign bonds, high yield bonds and convertible bonds.
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