Advisor: what’s your process for choosing investment funds?

Advisor: what’s your process for choosing investment funds?

Advisor: what’s your process for choosing investment funds? We sat down with financial planner Steve Tate to find out about his portfolio management strategy and to ask what he considers when selecting investing funds.

Wealth Professional: What’s your process for choosing investment funds?
Steve Tate: When it comes to investment funds and your clients’ portfolios, less is more. Each year I extensively research and analyze dozens of funds that meet my strict criteria, and narrow my choices down to 10 funds that I know inside and out. I try for a 10-20% turnover so each year I make 0 to 2 changes. I only choose established fund managers, in established funds, with a proven track record. However, that being said, I don’t always go for the 5-star fund on Morningstar. Using these ten funds, I create portfolios based on asset allocation and assets under management, which can then be tailored to suit specific needs and specific client objectives. These portfolios provide a solid base for all client recommendations and allow me to demonstrate a long-term actionable plan for all client investments.

Wealth Professional: What portfolio building techniques do you recommend for other advisors?
Steve Tate: Develop your own investment style. Are you a growth investor? Are you a value investor? Or are you a hybrid? These are important questions to ask yourself because after you’ve figured this out you can better sift through all of your investment options. You’ll also be able to explain your selections easier to your clients and attract people with similar investment styles to your own.

Wealth Professional: What else should advisors be considering?
Steve Tate: When choosing investment funds, take a big picture approach by learning the finer details. The portfolio managers are going to be making the calls on individual holdings within their funds. They have a lot more resources available to them than the average advisor, but keep in mind that most are bound by their investment mandate. Learn the details of these mandates. Learn what a portfolio manager can and cannot do, where they can invest and where they are not able to invest. Look at whether the portfolio manager must remain fully invested, or if they allocate to cash frequently or significantly. I find it very useful in the construction of my investment recommendations to know what a portfolio manager can and cannot invest in. I tell my clients that it’s my job to analyze portfolio managers and it’s the portfolio manager’s job to analyze the individual holdings of the fund.

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