The Value of an Investment Process
Advance Capital Management, Inc. is an SEC registered investment adviser. Registration with the SEC does not imply any level of skill or training.
THIS MATERIAL IS FOR INSTITUTIONAL/RIA USE ONLY. NOT FOR USE WITH THE PUBLIC.
Who We Are – Advance Capital
Chris Kostiz
President & Chief Investment Officer
John Pelon
Institutional Business Director
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Strategy Behind Every Move
Your average financial adviser
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Your average financial adviser
Consistency across client
portfolios
Client retention
Identifying problems early
Contingency planning
SEC scrutiny
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Performance
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2016 “Typical” SEC-Registered Investment Advisor
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26-100
employees
clients
103
accounts
Source: IAA Newsletter
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The investment process – NYU
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Looks like an investment process?
Pick only 4 and 5 star mutual funds
Wholesaler’s best ideas
Your firm’s “select” list
Favorite funds
Gut feeling
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What makes a “good” investment process?
Plan + Discipline
= Investment Process
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What makes a “good” investment process?
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Process defines “absolutes”
Size
Tenure Return
Buy or sell?
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Example: Manager Departure
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An art or a science?
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Example: Did Not Agree
Templeton Global Bond Fund (Thesis past few years)
-
China growth remains intact
U.S interest rates to increase
Long European periphery currency
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Developing an Investment
Process
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Investment Process Checklist
Investment Policy Statement
 Capital market assumptions
 Security screening criteria & process
 Due diligence
 Implementation & trading
 Ongoing monitoring
 Performance attribution analysis
 Reporting

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Investment Process: Summary
Risk Management Build Expected Return
Forecasts
Client Risk
and Return
Objectives
Client
Investment
Constraint
Asset Class & Strategy
Selection
Portfolio Construction
 Forward looking return expectations
 Long-term time horizon
 Correlation analysis
Ex-Ante
 Applied throughout the
investment process
 In-depth analysis and
review of client
objectives
 Proprietary search criteria and
performance evaluation
 In-depth quantitative and
qualitative
manager due diligence
 Selection and on-going monitoring
Ex-Post
 Ongoing portfolio
reviews: (Performance,
exposures, attribution)
 Evaluation of absolute
and relative risks
 Beta
 Standard deviation
 Information ratio
 Alpha
 Downside volatility
 Ongoing active management
 Multiple quantitative and qualitative
factors analyzed
Past performance does not guarantee future results. Portfolio managers may use some or all of the techniques described herein. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment.
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ACM 7-Step Screening & Due Diligence Process
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Step 1 – Idea Generation & Research Prioritization
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Industry Contacts
Quantitative screens
Continuing Education
Existing Relationships
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Step 2 – Performance Analysis
Style Consistency
Risk‐Adjusted Performance Metrics
• Alpha
• Sharpe Ratio
• Information Ratio
• Expense Level vs Peers
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Step 3 – Due Diligence Questionnaire
Investment
Philosophy_______________
Portfolio Style__________________
Compensation Structure________________
Expense Levels____________________
Team Bios__________________
Risk Policies_____________________
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Step 4 – Interview Portfolio Managers
Integrity
Sustainable
process
Execution
Conviction
Team structure
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Step 5 – ACM Team Collaboration
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Step 6 – Final Follow Up
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Step 7 – Ongoing Monitoring
Attribution
analysis
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Scorecard
Strategy
performance
Regular
reviews with
managers
Exposure &
risk
assessment
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Final Thoughts
investment teams
investment teams
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