BWA Model Portfolios - discretionary accounts
Compliance approval 1-806711 1/3/2019
Balance Wealth Advisors Discretionary Portfolios
One of the major reasons for our move to LPL was the ability to trade with discretion and to utilize model portfolios for our clients. The model portfolios allow us to more efficiently manage investments and monitor performance on a consolidated level. Our overall goal with these portfolios is to participate in the majority of the global financial markets upside potential but with a concerted effort to also focus on downside protection.
We built our BWA model portfolios using the following criteria:
Risk - All rate of return calculations we review include analysis of the applicable risk factor. We have the ability through the riskalyze tool to take a point in time snapshot of any of our client’s portfolios.
Returns - looking for consistent long-term performance in comparison to an applicable peer group. We review all returns vs the appropriate index to determine best fit among numerous active and passive investment choices.
Cost - making certain that overall expense ratios in our portfolios are reasonable. We do not use low cost as the only criteria as we are willing to pay a slight premium as long as underlying performance justifies.
Current economic environment and industry trends- we meet with various investment company representatives on a weekly basis to stay on top of the ever changing economic and investment landscape. We utilize the information we gather from these professionals in the projected performance of all of our models.
As of September of 2018 we created individual pages for each of our portfolios so that clients can easily review the changes to their investments without having the confusion of looking at all of the changes to the 5 portfolios we manage.
Please refer to the specific page based on your risk profile. Please call us if you have any questions or need assistance.
They are also available in Orion when you are looking at your accounts under the Updates tab:
As a team we review all of our discretionary models and made changes and adjustments based on our research and discussions. Our target is to review the portfolios weekly and monthly with the help of the many investment providers that visit our offices and then after a period of due diligence implement changes in May/early June and November/early Dec each year. May is after tax season and November is before year end.
We review the following 6 characteristics of our BWA discretionary portfolios:
1) Regional Exposure - what areas of the world are we exposed to and how does this help diversify our portfolios.
2) Equity style - we review the percentages that we have in Value Core Growth and make sure we have the correct allocations.
3) Equity composition - we review the percentages of Cyclical/Sensitive/Defensive equities that we have in each portfolio.
4) Bond composition - we review the Credit Duration/Maturity/Region of the world that our fixed income have.
5) Risk reward analysis - current target goal is the same return with 20%-30% less risk
6) Stress test - we analyze how much upside return do we capture and how much downside capture does each portfolio have.
We update the web page for each portfolio on a regular basis and include a full Riskalyze report, a Fi360 report and a Morningstar report.
*Printable/larger version link
Morningstar star ratings – Back test
Morningstar rates mutual funds from 1 to 5 stars based on how well they’ve performed (after adjusting for risk and accounting for sales charges) in comparison to similar funds. Within each Morningstar Category, the top 10% of funds receive 5 stars and the bottom 10% receive 1 star. Funds are rated for up to three time periods-three-, five-, and 10-years and these ratings are combined to produce an overall rating. Funds with less than three years of history are not rated. Ratings are objective, based entirely on a mathematical evaluation of past performance. They’re a useful tool for identifying funds worthy of further research, but shouldn’t be considered buy or sell signals.
Morningstar Medalist ratings – Forward looking
Funds can receive Morningstar analysts' highest ratings: Gold, Silver, or Bronze.
The Analyst Rating for funds (including our Medalist ratings) reflects a Morningstar analyst's qualitative assessment of a fund's future prospects. This is different than the star rating, which is purely quantitative and backward-looking.
- The Analyst Rating is based on the analyst's conviction in the fund's ability to perform better than similar funds over the long term.
- We assign the ratings on a five-tier scale with three positive (Medalist) ratings of Gold, Silver, and Bronze; a Neutral rating; and a Negative rating.
- If a fund receives a Gold, Silver, or Bronze Medalist rating, that means we expect it to perform better than similar funds over a full market cycle of at least five years.
Research Methodology: The Five Pillars
Morningstar evaluates funds based on five key pillars--Process, Performance, People, Parent, and Price--which its analysts believe lead to funds that are more likely to outperform over the long term on a risk-adjusted basis. Analysts assign a rating of Positive, Neutral, or Negative to each pillar.
Process: What is the fund's strategy and does management have a competitive advantage enabling it to execute the process well and consistently over time?
Performance: Is the fund's performance pattern logical given its process? Has the fund earned its keep with strong risk-adjusted returns over relevant time periods?
People: What is Morningstar's assessment of the manager's talent, tenure, and resources?
Parent: What priorities prevail at the firm? Stewardship or salesmanship?
Price: Is the fund a good value proposition compared with similar funds sold through similar channels?
Analyst Rating Scale
Gold: Best-of-breed fund that distinguishes itself across the five pillars and has garnered the analysts' highest level of conviction.
Silver: Fund with advantages that outweigh the disadvantages across the five pillars and with sufficient level of analyst conviction to warrant a positive rating.
Bronze: Fund with notable advantages across several, but perhaps not all, of the five pillars—strengths that give the analysts a high level of conviction.
Neutral: Fund that isn't likely to deliver standout returns but also isn't likely to significantly underperform, according to the analysts.
Negative: Fund that has at least one flaw likely to significantly hamper future performance and that is considered by analysts an inferior offering to its peers.