Portfolio Management (Asset Allocation)

NorthStar’s investing starts with four major guidelines:

Invest with Purpose

Understand Valuation

Gauge Sentiment

Manage Risk

 

NorthStar has a proprietary research platform that utilizes three levels:

Tier 1: Quantitative Analysis (Ranking: Valuation, Business Momentum and Quality)

Tier 2: Fundamental Analysis (Understanding Sectors, Industries and Businesses Deeper)

Tier 3: Technical Analysis: (Evaluating Trend, Relative Strength, Sentiment)

NorthStar investment solutions takes an institutional approach to building portfolios.  We currently manage nine investment strategies with different risk tolerances to help clients invest with purpose! These strategies are broken out into three buckets: Traditional, Asset Allocation and Specialty. The investment lineup allows our team to match portfolio disciplines with client objectives.  Many clients carry multiple objectives and invest across multiple portfolios. 

Traditional Portfolios:

Traditional portfolios invest in individual stocks or ETFs for sectors, industries or asset classes. Typically, these portfolios own a range of 20 to 30 different positions to give clients a diversified but focused portfolio.  The traditional portfolios come in three styles: Growth, Growth & Income and Aggressive Growth.  The main difference between them is the target stock vs. bond allocation. 

 

Growth & Income Portfolio targets 50% Stocks and 50% Bonds

Growth Portfolio targets 70% Stocks and 30% Bonds

Aggressive Growth Portfolio targets 100% Stocks

 

While these are the strategic long-term allocation targets the team can adjust those targets in a band of 15% in either direction. Meaning, the Growth Portfolio can adjust from the 70% stocks & 30% bonds to as much as 85% stocks and 15% bonds or as little as 55% stocks and 45% bonds based on the team’s tactical outlook for the asset classes.

The traditional portfolios make a handful of decisions in building out the exposure of the portfolio outside of just stocks vs. bonds like:

In Stocks:

U.S. vs. International

Large Cap vs. Small Cap

Growth vs. Value

Higher Beta vs. Lower Beta

Overweight/underweight different sectors

 

In Bonds:

Long Duration Bonds vs. Short Duration Bonds

Credit Risk: Investment Grade vs. High Yield

 

The stock portion of the portfolio is benchmarked against the S&P 500 for idea generation and uses it as a guide to building a diversified portfolio across many different sectors and industries. One important component of the traditional portfolios is how the team spends its risk bucket. As the team builds the portfolio certain sectors will be expressed by owning individual stocks while others will be expressed by owning a broader ETF through the sector or an industry. Roughly 50% of the stock portfolios are owned in individual companies.  Our research efforts attempt to identify companies that having attractive valuation relative to their future growth prospects.   Individual stock exposure allows us to generate higher returns while still managing the overall risk of the portfolios.

Portfolio Management (Asset Allocation)

ETF Portfolios:

 

The ETF portfolios invest in roughly 10-15 ETF’s across asset classes, sectors and styles. These portfolios have three different risk tolerances: Growth, Growth & Income and Income. The main difference between them is the target stock vs. bond allocation. 

 

Income Portfolio targets 30% Stocks and 70% bonds 

Growth & Income Portfolio targets 50% Stocks and 50% Bonds

Growth Portfolio targets 70% Stocks and 30% Bonds

 

While these are the strategic long-term allocation targets the team can adjust those targets in a band of 15% in either direction. Meaning, the Growth Portfolio can adjust from the 70% stocks & 30% bonds to as much as 85% stocks and 15% bonds or as little as 55% stocks and 45% bonds based on the team’s tactical outlook for the asset classes.

The ETF portfolios make a handful of decisions in building out the exposure of the portfolio outside of just stocks vs. bonds like:

 

In Stocks:

U.S. vs. International

Large Cap vs. Small Cap

Growth vs. Value

Higher Beta vs. Lower Beta

Overweight/underweight different sectors

 

In Bonds:

Long Duration Bonds vs. Short Duration Bonds

Credit Risk: Investment Grade vs. High Yield

 

These portfolios are designed for investors that are not looking to have stocks specific exposure which should reduce the volatility of the portfolios but will also reduce some of the upside potential.

 

Specialty Portfolios:

NorthStar currently manages three specialty portfolios to help our clients invest with purpose. These three portfolios are High Quality Dividend Growth, Concentrated Stock and Tactical Theme Based.

 

High Quality Dividend Growth: 

Invests in companies in the S&P 500 that meet a handful of criteria like: consistently pays and grows its dividend over 10 years, consistent earnings through economic cycles, management dedicated to shareholder returns, good cash flow, investment grade rated and low debt to capitalization.  The portfolio invests 100% in individual stocks (roughly 30-40 companies) across at least 5 sectors. This portfolio is designed to have lower risk characteristics than the broad stock market.

 

Concentrated Stock:

This portfolio invests in 20 to 25 individual stocks that the team believes should have better potential to provide excess returns to the broad stock market. This portfolio owns companies at three different weightings: Tier 1 (2.5%), Tier 2 (5.0%), Tier 3 (7.5%).  The portfolio is designed to take higher risk characteristics through concentrated stock specific risk versus the broad stock market. This portfolio is not benchmark sensitive but focuses on investing in companies that illustrate attractive valuation and business momentum characteristics in a concentrated way.   

 

Tactical Theme Based:

The portfolio focuses on investing in three to five concentrated themes that the investment team believe have a high probability of making money. These investments can be made through buying individual stocks and bonds or through broader ETF’s and funds. The portfolio can go from 100% invested in stocks to 100% in cash with the goal of providing an absolute return not a relative return to the broader stock and bond markets.  The larger tactile nature of the portfolio makes for larger changes to positioning. Some historically themes have been: changes in media, software, lower inflation, cyclical upturn, medical devices, consumer spending, it services, rising dollar and recession proof.   

 

Disclosure:  Portfolio descriptions are for illustration purposes only. Your specific portfolio will be based upon your individual situation.