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- Sharpe Ratio — So, exactly how much return is needed to justify the risk of a high Beta portfolio? The Sharpe Ratio helps answer this question by measuring risk adjusted returns. Managers who take more risks than the market should get higher returns, at least when the market goes up. A Sharpe ratio greater than one means that the manager has historically gotten excess returns over those expected for the amount of risk he is taking. In general, the higher a manager’s Sharpe ratio, the better.
- Manager Tenure — The manager — the one actually making the buy and sell decisions — is the person, or team of people, whose performance is actually being measured. The manager defines and often executes the stock selection methodology. A portfolio that has had an excellent track record under one manager might fall off our list if a new manager takes over. Conversely, a portfolio that turned around and improved dramatically when the new manager took over three years ago may be worthy of consideration. We look for experience and stability in management. Typically we like to see at least five years of manager tenure if there is a single portfolio manager.
- Personal Meeting — Selecting managers is more an art than a science. We do not take a formulaic approach to portfolio construction or manager selection. While we consider all the elements above, on many occasions we will meet directly with managers in an effort to better understand their individual approach to their strategy. In some cases we have had long-term relationships with the firms we recommend.
From among the managers we choose using this process, we build individual, custom portfolios for each client. These portfolios are based on your goals, needs and risk tolerance. Get a FREE Money Manager and Asset Allocation Proposal today.