The Blue Water Investment Process

We perform objective in-house financial, market, economic, and investment manager research.  We also leverage research performed by "Street" AND independent analysts, strategists and investors whose opinions we value - understaning the biases each possess.

We have a unique client information network that helps bridge the information gap between Wall Street and Main Street.  By constantly speaking with knowledgeable sources in the capital markets about what they do and what they see, we collect market wisdom that wouldn't be accessed otherwise.  We currently have approximately 26 clients who work in various financial markets that provide insight for our Grassroots Research.

Determine appropriate asset allocation based on timeframe to goal, individual risk tolerance and short- and long-term markets outlook (allocation alone accounts for about 90 percent of portfolio return). Utilize efficient-frontier optimization. Draft a written investment policy statement that documents target allocation and allowable variance.

Our model portfolios are governed by a Gradnamic (Gradual Dynamic) asset allocation principle.  "Gradnamic" is a term we use to describe our gradual, conservative, relative-value dyanamic global asset allocation process.  We consistently study the relative valuations of equites versus fixed income, alternative investments, and cash yields, to judge the relative opportunities and risks - which shift gradually over time.  Gradual changes are desirable because they force us to have high degrees of conviction in any changes that we make.  Gradual changes also lead to lower turnover and therefore, greater tax efficiency.  Finally, by focusing on holding-period time horizons that are 5-10 years in length, we believe outcomes are more predictable.  This is our Top Down process.

The Bottom Up process encompasses investment manager selection, structure and oversight.  Most often we recommend professional management within each asset class. The most common exception is individual municipal bonds.

We always have a first and second favorite manager in each asset class. Our selection criteria include:

• Risk-adjusted long-term returns and risk-adjusted recent returns vs. appropriate unmanaged index benchmarks and competitive universe of managers.
• Manager tenure, professional background, education and credentials.
• Identifiable and attractive management and research processes and philosophies.
• Long-term focus and conviction (low turnover), thus tax efficiency.
• Style consistency with some leeway for good managers to add alpha when opportunities present themselves.
• Appropriate compensation structure and incentives.
• Personal ownership stake. We like to see a large percentage of the managers' net worth in the fund(s) they manage.
• Integrity and ethics: We attempt to meet with our managers regularly and look them in the eye. We also attempt to speak with them in non-business settings to determine their ethical and moral makeups.
• Low expenses in light of value added.

We look to add to total returns through tax efficiency. Every recommendation in non-qualified portfolios is made with tax implications in mind. We track accumulated fund gains and losses, annual distribution dates (in case we can dodge an unfavorable event), portfolio turnover, and management sensitivity to tax efficiency.

Our clients meet with us regularly so we are aware of major life changes that affect how the portfolio should be positioned. We report performance and make any rebalancing, allocation- or manager-change recommendations during reviews. We have tremendous conviction in our manager recommendations and are aware that even the best managers over the long term have quarters and years of underperformance.