The long-term oriented approach is reasonable, but its short track record keeps the Process rating at Average.
The team expanded the model portfolios lineup from three to eight model portfolios when it acquired S&P Investment Advisory in July 2019. The most conservative portfolio has an equity/bond split of 20%/80%, and the series progresses by 10 percentage-point increments in equity, up to 90%/10%. The team develops its long-term capital market expectations on return and volatility for the main asset and subasset classes, and then allocates to them using a factor-based approach to diversify the portfolios into nine different factors such as carry, momentum, and emerging markets. The team can make tactical tilts, based on its macroeconomic and market views, but these tilts are generally small and infrequent. The team normally rebalances the portfolios two to three times per year while it aims to keep the portfolios’ tracking errors versus their respective custom benchmarks in a 0.5%-1.25% range.
The custom benchmarks are fairly granular and include in varying proportions core indexes such as the Russell 3000, the MSCI EAFE, and the Bloomberg Barclays US Aggregate Bond, and eschews foreign and high yield bonds, which de facto limits exposure to these more volatile subasset classes. The underlying funds are in-house ETFs that have been selected for their cost and representativity of markets and styles.
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