Investment Management

Portfolio Optimization

Beacon Hill Investment Advisory will spend ample time understanding a client’s life goals and dreams, current financial state, and willingness to take risk to assemble a customized portfolio.

While our focus is on the financials, we believe a true understanding of our clients’ goals and passions is vital.

Our quantitative analysis focuses on identifying the asset classes and manner of investment in them that benefits our clients the most.

Active vs. Passive Management

Active management is the use of managers that research individual stocks and bonds to pick the most favorable ones. Passive investing is simply taking the breadth of all individual securities within that asset class.

While many funds (approximately half) can outperform in the short term, long term outperformance is an elusive goal for managers in liquid parts of the market. Standard & Poor’s most recent report has found that 85% of large cap fund managers have underperformed against their passive benchmarks for the past 10 years.[i] This percentage typically grows as the length of the analysis grows.

Beacon Hill analyzes each asset class that is included in a portfolio to determine whether the asset class exhibits any risk-adjusted returns due to active management. While there are costs to passive management, active management is much more expensive to the investor. Examples of increased costs are salaries and overhead for the managers, increased brokerage costs, and decreased tax efficiency. If an investor owns mutual funds or variable annuities, these ongoing annual expenses are simply drawn out of the performance of the funds (which is surprising to many investors!), and are in addition to any sales commissions paid to the broker.

Expense Analysis

In many cases, a client can receive the ongoing management and monitoring that Beacon Hill provides on a more cost-effective basis than simply purchasing securities from a broker, as we can recommend more efficient passive management.

Our analysis has found that some areas of the market do, however, benefit from active management. These are typically less liquid parts of the market, such as smaller capitalization stocks and Real Estate Investment Trusts. Our analysis will review those parts of the market on an ongoing basis to ensure our clients are receiving additional performance in return for the additional expenses.

Product Selection

The final analysis that Beacon Hill performs is to determine the specific product to be used to implement a certain asset class in the management method prescribed.

We analyze each product’s:

  • Consistency with its stated objectives (has it historically done what it says it will do?)
  • Consistency with portfolio size (a small account may need a bond fund instead of individual holdings for diversification)
  • Client’s needs for tax efficiency and control (a larger portfolio may need individual bonds so they can harvest gains and losses)

We continually review the fund selection and will make any required changes if we can improve it.

Implementation

We review our recommendations with clients before our initial implementation. During the review, we are careful to make sure the client is comfortable with the risk and return parameters of the portfolio. We are happy to review the specific analyses to whatever depth the client desires.

Our client service and analysis of client portfolios is a continual process. On a quarterly basis, we review with our clients any changes that may have occurred in their life and, if needed, adjust the portfolio accordingly.

Should our client wish to review their portfolio or the current state of the market in addition to these regularly scheduled meetings, we are always available.


[i] https://www.cnbc.com/2019/03/15/active-fund-managers-trail-the-sp-500-for-the-ninth-year-in-a-row-in-triumph-for-indexing.html