Paying Attention

Once the portfolio is in place, we monitor it closely.  

One of the secrets to our success has been our patience with under-performing managers.  A recent report by Vanguard (yes, even Vanguard has active managers!), outlined the criteria necessary to find outperforming managers.  Among their findings was just how long exceptional managers sometimes lag the market and peers.

Not many advisors have the courage or patience to hold a manager that has been out of favor for several years.  We find strict performance criteria requiring a manager be fired when underperforming for a set period, say three or five years, to be naive and counterproductive.  Yet, most consultants have a "watch list" for these lagging funds, many of which will be terminated just before reclaiming the lead.  We understand it is tough to stand in front of an investment committee and defend a talented but trailing manager, quarter after quarter, but confidence and discipline is not easy.  

What will cause us to terminate a manager are changes that we feel could affect future performance.  Changes such as personnel turnover, ownership, asset levels or strategy will cause us to re-evaluate our positions.  And, sometimes we just find something better. And yes, sometimes we are just wrong. We constantly search for ways to improve the odds of success, be it rebalancing, education or replacing funds. We earn our keep!