SMS Financial

Portfolios, Research & Analysis

In the portfolio planning meeting, we discuss goals, realistic exceptions, and time horizons and decide with each client how much risk is appropriate for them. With a view to the client’s particular situation, we will propose an asset allocation scheme which spreads the clients assets among various classes of assets. Smaller accounts will be placed into relatively few investment funds, which provide diversification without the need for many positions in the account, while larger accounts will have more positions, with each position being a narrower target. This style of management lowers transaction costs for smaller accounts, while allowing larger accounts to be more finely tuned. We do not use leverage or margin as an investment strategy.

Here are some of the methods by which we analyze investments:

  • Modern portfolio theory - MPT is a statistical and mathematical way of understanding the performance of a portfolio. If you hear people talk about "alpha," "beta," or "index tracking," then they are using the concepts of Modern Portfolio Theory.
  • Asset/liability management – ALM views an individual’s finances as similar to a business in that the person has revenues and expenses, assets and liabilities. In this perspective, the client’s portfolio of investments can be targeted so that the client’s liabilities are met by the client’s assets. This type of management is particularly useful for clients with significant concerns about meeting current and future cash flow needs.
  • Morningstar's methods - Morningstar, Inc. is a leader in the investment manager analysis field, with a particular focus on integrating the subjective side of investments (the people and processes) with the objective side (the hard numbers). SMS Financial contracts out research from Morningstar. But if Morningstar does not offer analysis of an investment, SMS Financial can use the tools and methods provided by Morningstar to analyze an investment in the same way that Morningstar would.
  • Fundamental analysis - This is the "old school" of investment analysis, used by the legends of investing to notable success. Fundamental analysis of an investment takes a hard look at the financial statements and announcements of a company to determine the quality and fair value of an investment. For stocks, a fundamental analysis seeks to find out what the stock is worth without any hype or accounting trickery. For bonds, a fundamental analysis grills the issuer on its creditworthiness.

Other proprietary research - At SMS Financial, we know that we aren't always right, or that we might miss something that somebody else sees. For this reason, we always try to find out what the consensus opinion is and why. After analyzing the views of other professionals, we can intelligently agree or disagree with them, with the ability to deeply understand both positions if we differ.


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