Diversification among asset classes reduces overall portfolio risk. Our investment portfolios include stocks, bonds and alternative investments, chosen based on long-term fundamental analysis with consideration of relevant risk factors and asset class characteristics.
AMI directly manages core stock portfolios. We typically purchase companies that (a) we understand, (b) have an economic “moat” – a competitive advantage that allows them to earn above average rates of return on capital and (c) are priced at a large discount to a conservative estimate of their intrinsic value. We believe that a concentrated portfolio of well researched names that fit this bill will produce superior returns over time at lower levels of long-term risk. We buy businesses, not pieces of paper. We utilize long-term holding periods with low portfolio turnover.
In select cases we may utilize mutual funds (for international exposure for instance). In those instances, we work with fund managers employing an approach similar to ours, avoiding the bulk of managers that over-diversify, overcharge and engage in damaging levels of portfolio turnover.
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We construct well diversified, high-quality bond portfolios. We manage portfolio duration – a measure of the portfolio’s sensitivity to interest rates – subject to our views on inflation and interest rates, adding additional value through spread analysis and sector selection. We utilize our Bloomberg terminal and institutional relationships to ensure best execution on bond trades. We invest in a wide range of fixed income securities, selecting bonds to maximize after-tax returns.
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Alternative investments could be classified as “not stocks or bonds;” as opposed to a well-defined, homogenous group of investments, they represent a wide array of assets and strategies. Examples include real estate, commodities, managed futures, private equity, hedge funds, etc. Alternative investments can serve as an important complement to stocks and bonds in a well diversified portfolio, helping to reduce risk and increase return.
AMI has amassed a large amount of experience and built a strong network of contacts in the alternative investment space. We employ a comprehensive framework to alternative investment analysis and participate in such investments only when we feel we have a thorough understanding of the investment opportunity, are comfortable with the risk profile of the investment and possess a strong belief that inclusion will improve long-term investment results.
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