Offering an advisor relationship built on personal trust and company-wide integrity, Neuenschwander Asset Management, LLC serves as a fee-only registered investment advisor to individuals, families, corporations, qualified retirement plans, partnerships, not-for-profits — anyone with a desire to pursue long-term financial objectives. We have created a place where the processes are understandable, where investing and wealth strategy just feel right.
Our approach to investing is straightforward and will be described in significant detail in Part II: Investment Methodology. Here, we provide a brief overview.
- We use low-cost institutional managers who provide passively managed asset class and/or core equity mutual funds.
- We diversify globally to reduce non-market risks.
Passive asset class investing and broad global diversification are rooted in Modern Portfolio Theory (MPT). Several leading financial economists, three of whom received the 1990 Nobel Prize for their contributions, conducted research resulting in its formulation, and our investment strategies are based on it. Many institutional investors have adopted the concept of passive asset class investing. We believe that passive asset class investing offers a lower cost, lower risk alternative to active selection of individual securities or actively managed mutual funds or separate accounts.
In addition, our investment philosophy fully supports, and is supported by, The Uniform Prudent Investor Act. Our approach provides for a prudent, fully diversified, cost conscious, performance measured methodology. The American Law Institute, in drafting The Uniform Prudent Investor Rule (which has been adopted by most states as the foundation for their prudent investor rules), stated the following:
- Economic evidence shows that the major capital markets are highly efficient.
- Investors are faced with potent evidence that the application of expertise, investigation, and diligence in efforts to “beat the market” ordinarily promises little or no payoff after taking into account research and transaction costs.
- Market Portfolio Theory is adopted as the standard by which fiduciaries must invest funds.
On the equity side we believe in extensive diversification, both within each asset class and across asset classes. In addition to the domestic asset classes, we typically allocate non-trivial fractions to international asset classes and hard assets (real estate and commodities). We diversify along dimensions of risk formalized in what is known as the Fama-French three factor model: equity, small-cap (size), and value. We believe the three factors correspond to distinct dimensions of risk. This is a prevalent view in the academic world as well as among a wide range of investment professionals and institutional investors.
We do not believe that individual security selection, market timing, technical analysis (charting) or managers chasing today’s “hot” investment products add value to a portfolio. In this, too, we are in agreement with the majority of scholars, and a substantial and growing number of professionals and institutional investors.
We view the fixed income portion of a portfolio as a diversifier and risk-dampener for the equity portion. As such, we avoid volatile fixed income classes, such as long-term bonds, junk bonds and mortgage-backed securities. Instead, we feel the risk-expected return characteristics of a portfolio can be improved if any additional expected return is addressed by varying the stock/bond mix. There are solid arguments, both empirical and theoretical, supporting this view. Therefore, we restrict fixed income investments to high quality, short- to intermediate-term bonds. Since there isn’t much differentiation between such bonds, diversification across a very large number of securities in this asset class is not as important. For this reason, our experienced fixed income team builds customized portfolios of individual bonds for our clients – without trying to predict the future direction of interest rates, changes in the shape of the yield curve or variations in credit spreads.