How do we build portfolios at Creekmur Wealth?
Nearly everyone we meet with will eventually ask some form of this crucial question. And it's a good one because being a successful investor is often predicated upon having a well-developed investment plan. Over the years, we have honed our investment management methodology into what we describe as a “Core & Satellite” strategy to ensure that our investment plan is clear and concise. Let me explain how this works in our Creekmur Wealth portfolios.
What is the Core portion of our portfolio?
Appropriate diversification is one of the cornerstones that every portfolio must have for long-term investing success. A portfolio too heavily invested in one area of the market will be vulnerable to excess risk if that area of the market suffers a downturn. Our Core holdings seek to provide the correct amount of diversification in each portfolio at a low internal cost to help diminish this risk. Typically, our Core positions comprise 60% to 75% of each portfolio.
The Core portion of every portfolio is constructed using low-cost index funds that provide broad market exposure. These are positions that we will generally buy and hold for the long run. From time to time we may increase or decrease the total amount invested in each of these holdings based on global economic or market data that we monitor daily. (Read here for more on how we use data.) A great example of how core positions can be altered to our client’s benefit would be a change we recently made in the Core of our Moderate Risk portfolio:
Due to the ongoing fallout from the COVID-19 related shutdown we have been tracking the debt repayment ability of companies with large amounts of debt. You may have noticed several companies have begun bankruptcy filing (Hertz, JC Penny, Macy’s). We expect that it will take a longer period for such companies to recover financially which may impact their ability to make payments on their loans. With that in mind, we fully removed our High Yield Bond position from the Moderate Risk portfolios. In the future as companies begin to get their financial footing, we may increase the allocation to this position as there are long-term benefits of investing in these types of bonds.
What is the satellite portion of our portfolio?
The Satellite portion of each portfolio is comprised of individual company stock or index funds that operate in sectors or businesses that we believe to have long-term growth opportunities. In a normal market environment, we do not trade these positions on a regular basis because we view them as long-term drivers of potential out-performance for our clients. There are Satellite investments in each portfolio that we have held for many years – eCommerce, Cloud Computing, and Cybersecurity are sectors where we have held long-term investments. Typically, these positions comprise 25% to 40% of each portfolio depending on the level of risk that is appropriate for each client’s goals
We will more actively make tweaks to these positions based upon what is occurring in the market or economy. This type of activity occurred during the 2020 first quarter sell off when we were more active than normal in the Satellite positions of each account in an effort to reduce the potential for loss in our clients' accounts. During this period, we were able to invest in companies or sectors that would benefit from the move to "stay-at-home" such as ZOOM, PTON, SHOP, & IBB. These provided growth in a market environment where many investments were dropping.
In our role as asset managers, we are compensated by our clients to invest their funds with a specific amount of risk to achieve a specific goal over a set period. No investor is ever correct 100% of the time and we are no exception to that reality. However, we have found that our Core & Satellite strategy helps us ensure that Creekmur Wealth portfolios are invested in a low cost, risk appropriate manner. Ultimately, our highest achievement is partnering with our clients to help them achieve their goals.
If you have more questions about how the investments in your portfolio fit into our Core & Satellite strategy? Give us a call today.
Creekmur Wealth Advisors may be reached at 866-358-4441 or Info@Creekmurwealth.com.
Citations.
1 - https://www.google.com/search?q=peloton+stock+ytd&rlz=1C1GCEU_enUS876US876&oq=peloton+stock+ytd&aqs=chrome..69i57j0.3446j1j9&sourceid=chrome&ie=UTF-8
2 https://www.cbsnews.com/news/coronavirus-economy-jerome-powell-federal-reserve-crisis-60-minutes/
