Market Flex Portfolio: Risk-Managed Investing

A Core-Satellite Approach to Diversification and Risk Management

A portfolio that combines the tax and trading efficiencies found by using individual stocks and bonds as well as low-cost Exchange Traded Funds (ETFs) with tactical and strategic asset allocation.

Each portfolio includes a core strategic asset allocation determined by the risk profile of an investor coupled with satellite positions that are intended to take advantage of opportunities that contribute to return or help mitigate downside risks. We also will utilize the expertise of outside money managers who have proven track records managing for risk using tactical investment approaches.

Portfolios are customized to be globally diverse and tax-efficient at the lowest attainable cost. Generally, MarketFlex portfolios include most of the following elements so that investors have a global and tax-efficient investment.

The Investment Buckets in a MarketFlex Portfolio:

Core Allocation: A multi-asset strategic allocation utilizing ETFs representing the major asset classes. Generally, this portion may be represented by as few as three investments up to twelve ETFs.
Dividends: Equities or equity ETFs that demonstrate a history of paying dividends. This portion of the portfolio is as much a hedge for inflation as an alternate income source for a portfolio.
Inflation Hedges with Income – Master Limited Partnerships, Real Estate, Convertible Bonds, Floating Rate Notes, Treasury Inflation Protected Securities (TIPS): These are generally accessed through ETFs but open- and closed-end mutual funds may be used. Since MLPs are expected to price their services independent of the price of the underlying commodity being transported, they have the ability to vary their pricing (and potential revenue) which provides a pass-through of inflationary costs. Convertibles are hybrid securities that pay a coupon rate and offer the opportunity for capital appreciation if the underlying stock price increases. Real Estate tends to have built in inflation riders with leases. Floating Rate Notes and TIPS reset their interest rates as inflation impacts yields. So, all of these elements when combined may provide both an alternate source of income as well as inflation hedge.
Alternatives: The role of this portion of the portfolio is to provide non-correlation to other assets. They “zig” when other conventional assets may “zag” so they may offer a hedge to market volatility or opportunity for extra positive returns to the portfolio. This piece may include “managed futures,” “commodities,” “natural resources,” “precision metals” like gold, and “currencies.”
Volatility Hedge: Since most of the portfolio is “long,” this position provides a hedge in lieu of using more costly options to counter market volatility.
Real Estate Investment Trusts: Although the non-correlation of real estate to the broader equity market has disappeared to a large extent, this asset class still provides income and a possible inflation hedge.
Tactical Momentum: The role of this bucket is to potentially capture upside returns from stocks exhibiting strong momentum trends. This is essentially a trend-following strategy utilizing individual stocks though ETFs or mutual funds may be considered.