Investment Approach
Palladium provides investment management and a high level of personal service for those with $500,000 or more in investable assets. Investment portfolios are tailor made to clients' unique circumstances, and are managed on a continuous basis. Financial forecasting, setting of goals and objectives, asset allocation, and security selection are the foundations of the work provided.
Strategy/Approach
Through a series of preliminary discussions with a new client, the portfolio managers help establish the appropriate investment guidelines for the management of the account. The portfolio management process follows the road map created at the outset of the relationship with financial reviews. Clients receive quarterly reports of their investment accounts which include investment performance, an asset allocation summary, and an appraisal of holdings. An opinion editorial illustrating the firm's perspective on current issues is included with quarterly reports.
— Economic and market research contribute to an asset allocation model used as the foundation for client
investments. Multiple strategies are available to suit individual risk tolerances and preferences. Investment analysis
is performed across a broad spectrum of investments: stocks, bonds, real estate, hedge funds, mutual funds and exchange
traded funds.
— Intellectual property includes various proprietary research, asset allocation and investment selection models, as well as development and uses of technological solutions.
— Dedicated teams provide depth and prompt attention to client needs. Each client is assigned a primary and secondary portfolio manager in addition to a client service administrator.
Asset Allocation
Arguably the most critical investment decision — the mixture of cash, bonds and stocks — has been shown to influence some 90 percent of the variability in one's portfolio. As such, the investment process at Palladium Registered Investment Advisors includes an on-going analysis of the relative risk and reward between these asset classes. This assessment is then applied to the individual objectives of each portfolio to determine what the mixture should be. Where appropriate, other less liquid asset classes may be considered, including real estate, hedge funds and private equity.
Equity Selection Process
Palladium's equity selection process is top-down and quantitative in nature. Its underlying tenets are security valuation and diversification. Security valuation is determined by the ratio of a stock's price to its underlying earnings power. The underlying earnings power of a company is determined by current earnings, historic earnings and estimated future earnings. Diversification is handled by a quantitative "portfolio optimization" process that compares and analyzes the portfolio versus the S&P 500. This comparison is made not only for Economic Sectors and Industries, but also for market capitalization, foreign currency exposure and several other factors. The process produces a portfolio of stocks that mirrors the S&P 500's diversification and market capitalization, but has a 20 - 30% valuation discount based on its underlying earnings power. Exposure to foreign and smaller capitalization securities will generally be obtained by the use of exchange traded funds.
Fixed-Income Process
Our fixed-income process reflects our conservative philosophy. We regard any strategy premised upon one's ability to predict the future direction of interest rates as inherently speculative. Thus, our style with respect to managing bonds employs the "laddering" of maturities and buy-and-hold approach.
- High quality is essential. We generally buy issues that are at least A-rated by the major services and maintain an average quality of AA.
- As history has demonstrated that most of the slope in the yield curve occurs between one and 10 years, so too does our laddering follow those parameters. The weighted average maturity of our bond portfolios rarely exceeds five years. Within this framework, duration will be manipulated based upon our expectation as pertains to the secular direction of interest rates.
- Value is added via purchases, focusing on those areas of the bond market where spreads, relative to Treasuries, may be wider than their historical average