Investment Management

Investment Management from NewFocus Financial Group

Our investment philosophy is fundamental to how we manage our client portfolios. Developing an investment strategy and building a customized investment portfolio that functions appropriately given your goals and objectives, risk tolerance, financial position and resources, time horizon, income and liquidity needs is vital to your long-term success.

After implementation of the investment plan, we provide ongoing discretionary management of your financial assets while providing you with easy to understand investment reports and portfolio updates along the way. Our fee for wealth management services is based on a percentage of assets under management and all client accounts are held at TD Ameritrade.

Our Portfolios

Mutual Fund and Exchange-Traded Fund (ETF) Portfolios

Our mutual fund and exchange-traded fund (ETF) portfolios start with a strategic asset allocation approach spanning a wide variety of asset classes. Within our allocations we attempt to uncover asset classes and investments that offer low correlations and high portfolio diversification benefits. This helps mitigate portfolio volatility, which combined with our overall philosophy, makes for a much smoother investment experience.

Once a strategic allocation is determined, we will manage portions of the portfolio based on our ongoing research of both the financial and economic environment. These tactical moves can be offensive minded, based on value we may have uncovered that creates an opportunity, or defensive minded to protect against unfavorable market or sector valuations and economic trends. This is accomplished by blending both mutual fund and ETFs chosen through a rigorous screening and research process.

Individual Stock Portfolios

NewFocus Financial Group also offers an individual stock portfolio using a dividend growth strategy. The best way to return cash and create long-term value to shareholders is in the form of dividends, versus the use of share buybacks and mergers/acquisitions. Dividends paid out to shareholders are historically a more stable and predictable mechanism for returning excess earnings and free cash flow.

Fundamental analysis is the primary tool in the selection of securities to use in our portfolio. For individual companies, this includes a review of the underlying financial characteristics of the business, a study of the firm’s competitive environment, as well as other qualitative and quantitative factors.

Several components of our investment evaluation process are listed below:

  • Profitability. A review of margin and earnings levels, compared to the overall market, peers and the firm’s own historical results. Signs that such profits are long-term in nature as opposed to a result of temporary accounting adjustments or unsustainable conditions. Assessment of Return on Equity (ROE) and Return on Assets (ROA), measurements of the efficient use of capital resources.
  • Cash Flow. Positive free cash flow provides a reliable, not-easily-manipulated bottom-line measure, and represents an equalizer of wealth creation between different firms.
  • Financial Health. Review of a firm’s levels of leverage—analysis of manageable levels of debt as opposed to unrestrained borrowing; which, in any venture, creates a hurdle to profitability and raises business risk should cyclical downturns occur.
  • Earnings Quality. Analysis of these policies in addition to the firms revenue recognition policies, assumptions used in earnings/income calculations, inventories, working capital and cash flow analysis to uncover any “red flags.”
  • Growth. Evaluation includes level of growth in profits, profit margins, cash flow (the importance of which we mentioned above), as well as the more qualitative elements such as growth in market share and product pipeline.
  • Valuation. Determining the reasonableness of the market’s “asking” price of a security relative to the overall market or similar firms. This is a comparative measurement based on relative price/earnings, price/sales, price/cash flow or other ratios as well as through the use of valuation modeling.
  • Other factors. Includes a variety of qualitative criteria such as: fundamental structure of an industry, competitors, assessment of quality of management, research and development activities, new products and future prospects.

We typically sell a security under the following conditions:

  • The company cuts or suspends a dividend.
  • The price of a security appears to have reached full value or has become overvalued—a situation where further price appreciation potential is limited.
  • In the case of an individual stock, the underlying business fundamentals of the firm turn negative or its future prospects begin to differ from our original reasons for purchase.

In combination with the factors above, another investment provides us with a better opportunity.

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About NewFocus Financial Group