ASSET MANAGEMENT PHILOSOPHY

We believe that diversification spreads risk, that risk and return are related, and that the asset allocation decision is the primary determinant of a portfolio’s risk and expected return. Additionally, it is our belief that investors are better rewarded for taking risk in equities than fixed income. Our equity allocation is diversified globally, minimizing concentrations in any one company, industry, or asset class. The fixed income allocation is composed of high quality, short-term debt instruments in order to minimize interest rate and default risks.

The equity allocation is exposed to three risk premiums that academic studies have shown to produce returns: the equity risk premium, the value premium, and the small company premium. These risk factors can explain over 96% of an equity portfolio’s variation in return. Utilizing institutional share class mutual funds, the result is a total market portfolio engineered to properly capture the risk premiums with low transaction costs and minimal portfolio turnover.

Since the asset allocation decision is the primary determinant of a portfolio’s risk and expected return, we monitor portfolios to keep the allocation in balance. Rebalancing will occur when an asset class reaches either the minimum or maximum tolerance level as outlined by the Investment Policy Statement. Maintaining the relationship between a client’s goals and wealth should ultimately drive the asset allocation decision. Therefore, we develop an asset allocation which we believe has the highest probability of achieving that goal. Asset allocation changes are not made in an attempt to time markets or in reaction to short-term volatility. Allocation changes will occur to achieve further diversification, to improve the risk return relationship, or to adjust to changes in a client’s goal.