At North Castle Advisors, LLC (NCA), we employ many solid disciplines we believe give clients the greatest opportunity for long-term performance, consistent with their appetite for risk. Among these disciplines are:
The idea that free markets work. Much of Wall Street's message is predicated on the idea that free markets can be consistently beaten with market timing. We disagree. Years of academic research demonstrate that free markets are brutally efficient in setting reasonable prices and that trying to time markets is counterproductive, costly and unnecessary. Since we believe that over long periods, markets pay for risk taken, we keep portfolios fully invested and let markets do their work.
Diversification is the key to intelligently assuming investment risk. Diversification can reduce portfolio volatility because different asset classes don't usually move in parallel. We achieve extremely broad diversification by selecting among 10 or more well defined asset classes for any portfolio. In equities, we use US, international and emerging market funds, with a "value" and "small cap" emphasis to increase expected return. In fixed income, we emphasize short and intermediate term exposure. We also use limited commodity exposure to further dampen volatility.
Whenever possible, use passively managed funds. To access individual asset classes, we use passively managed funds because of their low cost, high tax-efficiency, and broad diversification. They also keep their focus on a defined asset class as a matter of fundamental policy, avoiding the tendency among active fund managers to chase different asset classes as they come into and out of favor.
The importance of keeping fees and expenses low. Fees and expenses can be an enormous drag on investment results. By designing portfolios using low cost funds (typically between .40% and .50% of assets under management per year), keeping our management fees reasonable (currently at .60%), our goal is to keep total expenses to 1.10% per year or less. We believe this is far superior to advisors who use actively managed funds and charge higher fees, where total fees and expenses easily can exceed 2.00% per year.
For a discussion of the other key element in NCA's investment relationship, see Investing for Peace of Mind
