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Portfolio Customization

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Executive summary

Today's investment markets offer increasing opportunities for individuals seeking to build an optimal investment portfolio. At the same time, the rapid growth in the number of investments to choose from and the pace of change in the financial markets can often be overwhelming for individuals. This is why a structured investment approach can be beneficial in helping our clients work towards achieving their key financial objectives.

Our approach is to combine the full strength of our institutional knowledge with an assessment of each client's goals and preferences to determine specific investments that are appropriate for inclusion in a portfolio. We refer to this as the portfolio construction and customization process. This two-stage process is not a one-time event. It also includes monitoring of progress and ongoing adjustments that reflect changes in market conditions or investor priorities.

Our portfolio construction process incorporates our knowledge of strategic asset allocation, combined with specific investments from our solutions platform. We not only identify hundreds of fully vetted investment opportunities across 15 global markets but we also carefully assess the long-term and short-term potential for these investments. By leveraging our vast institutional knowledge of the markets and our experienced judgment, we develop insights and seek effective ways to capitalize on the current economic and financial environment.

Leveraging the power of our investment engine to create the foundation

Based on the work that is done through our strategic asset allocation and due diligence processes, the next step is to make specific portfolio selections. We believe that effective investing begins with long-term asset allocation for two key reasons:

  1. Diversification: Owning the appropriate, diversified mix of investments designed with the potential to generate a superior return for a given level of risk.

  2. Discipline: We believe when the level of volatility in a portfolio is appropriate for an investor's level of risk tolerance, the investor is more likely to stay the course in working to achieve his or her ultimate investment objectives.

An important philosophy that guides our approach is that an effective portfolio is not one that "beats the market" in a given year, but one that fulfills a long-term investment goal without taking unnecessary risk.

Utilizing multiple investment approaches

We are proponents of both active (actively managed funds) and passive (index funds) investment approaches. A mix of both may be appropriate for a portfolio. The key is to utilize the advantages that each approach has the potential to provide.

We may recommend some holdings that call for market exposure via lower-cost index funds. These are typically circumstances where we think market exposure is more critical than specific security selection within that asset class. In other situations, specific security selection may be considered an important factor in the potential for generating enhanced returns. For these situations, we may recommend actively managed funds, which generally have higher costs.

We focus on finding a balance between return and risk. From a return standpoint, we seek to recommend funds that we believe can perform in the top quartile of their competitive universes. From a risk perspective, we specifically recommend "all weather" managers or manager blends who have demonstrated an ability to perform consistently across different types of market environments. We also take steps to ensure consistency in management approach and to avoid surprises to help steer clear of any unnecessary exposure to unintended risk.

Vigilant standards

Superior investment results aren't simply achieved at the time a portfolio is established. It takes ongoing monitoring of each investment and regular adjustments to the portfolio to account for investment performance, changes in the market and short-term opportunities that may arise. We address these concerns in two ways:

  1. Tactical asset allocation: Markets fluctuate over time and different investments experience different results. Returns may come up short of expectations if no adjustments are made to positions that may at some point represent an overweight or underweight in an investor's portfolio. More importantly, maintaining the status quo as the weight of certain portfolio positions change could result in increased risk. Our tactical asset allocation approach makes only modest adjustments to a portfolio's long-term allocation, but we believe this degree of fine-tuning can make a big difference in the results that are achieved.

  2. Opportunistic investing: There can be specific opportunistic investments and timely trade ideas that periodically present themselves. These, too, can present modest adjustments that seek to take advantage of short-term dislocations in the capital markets, and are often designed to reduce risk in a portfolio during certain market environments.

Building a customized portfolio

After the portfolio construction process delivers a well-researched and fully developed framework, the next step is to create an appropriate portfolio for each unique client.

Backed by the support of our experienced investment team's research and portfolio construction framework, your investment professional works with you to help create a customized portfolio designed to help you work towards meeting your specific objectives while maintaining an acceptable level of risk. Our goal is to design a portfolio aligned with your priorities. We seek to accomplish this by proactively assessing the unique nature of your personal goals and needs.

Portfolios can be customized around specific factors such as your:

  • Needs and goals

  • Key life and financial events

  • Expenses and liabilities

  • Risk preferences

  • Investment preferences

  • Time horizon

  • Tax concerns

  • Personal family legacy desires

Portfolio Customization

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Your investment professional works closely with you to learn more about how each of these key factors relates to your circumstances. We believe this effort can help you effectively leverage the full capacity and expertise within our organization.

Our personalized approach also provides:

  • Continuous tax management. A focus on tax-efficient strategies for those with tax-sensitive situations.

  • Careful management of concentrated positions. We will work to help you diversify the risks of significant concentrations in a small number of holdings, or one holding (such as a company or company stock).

Conclusion

Our disciplined, customized portfolio construction process is designed to help you work towards realizing your investment goals. We utilize a rich array of investment capabilities in creating our strategic asset allocation portfolios and leverage a thorough and repeatable due diligence process to select, approve and monitor investment managers on our investment platform.

The Private Client Reserve supports a broad range of customization techniques that incorporate optimization techniques and tax management capabilities. Our investment professionals have the ability to address specific challenges you may face and recommend appropriate strategies to help you meet these challenges. Our goal is to deliver a portfolio that is most appropriate for your unique situation.

At The Reserve, we are committed to your success in attaining your long-term investment objectives.

 

IMPORTANT DISCLOSURES

Investment products and services are:

Disclosures

This commentary was prepared in October 2015 and the views are subject to change at any time based on market or other conditions. This information represents the opinion of U.S. Bank Wealth Management and is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. U.S. Bank and its representatives do not provide tax or legal advice. Each individual's tax and financial situation is unique. Individuals should consult their tax and/or legal advisor for advice and information concerning their particular situation.

Past performance is no guarantee of future results. Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio.

Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible difference in financial standards and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investing in fixed income securities are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in debt securities typically decrease in value when interest rates rise. The risk is usually greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes, and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates, and risks related to renting properties (such as rental defaults). Exchange-traded funds (ETFs) are baskets of securities that are traded on an exchange like individual stocks at negotiated prices and are not individually redeemable. Share of ETFs may trade at a premium or a discount to the net asset value of the underlying securities.

© 2015 U.S. Bank N.A. (10/15)

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Important Disclosures

Investment products and services are: 
NOT A DEPOSIT  •  NOT FDIC INSURED  •  MAY LOSE VALUE    NOT BANK GUARANTEED   NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY

U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.

Equal Housing  Lender Equal Housing Lender. Credit products are offered by U.S. Bank National Association and subject to normal credit approval. Deposit products offered by U.S. Bank National Association. Member FDIC.