More than simply choosing investments based on past performance, asset class or style, Molewski evaluates the qualifications and track record of some of the top  managers in the U.S. What we're looking for is repeatability of skill and performance; a disciplined, logical process that draws heavily on time-tested principles of fundamental valuation; and experienced and stable management teams that can clearly articulate their process.

Once we've narrowed the field, managers are screened using a five-step process:

  1. Performance screens and quantitative analysis
  2. Investment manager questionnaire
  3. Investment manager interview
  4. Investment committee recommendation
  5. Ongoing monitoring

For more on our process, click for details.

 Performance Screens & Quantitative Analysis
Our approach to manager research recognizes that past performance is useful only as a tool for identifying managers that may be worthy of further in-depth qualitative research. So performance screens and quantitative analysis are a starting point in our research process. In addition to absolute performance we take into account:

  • Performance consistency, volatility and downside risk relative to the fund's peer group and benchmarks over a wide variety of time periods (which we can adjust in our database).
  • Special factors that impacted performance that may not be repeatable.
  • The level of assets on which the record was based. The extent to which the performance was generated with a small asset base can be a red flag.

 Investment Manager Questionnaire
If a fund passes our performance screens and looks promising on a quantitative basis, the next step is for the fund management firm to complete our detailed Investment Manager Questionnaire (IMQ) consisting of about 50 questions.

It is designed to elicit responses from the portfolio management team to ascertain the firm's ability to continue their prior periods' performance success. It is composed of five categories:

  • Firm Information
  • People
  • Process/Philosophy
  • Performance
  • Operations

 Investment Manager Interview
After reviewing the responses to the IMQ, we usually have a number of additional follow-up questions, so we set up a phone interview with the portfolio manager(s). This is an important part of the process in which we begin to qualitatively assess the manager's discipline and skill. We ask for specific examples as we attempt to verify that the manager's actual practices are in line with how the investment process is articulated in the questionnaire and marketing documents.

If after the initial interviews we are sufficiently impressed with the manager's investment process, discipline in executing that process, focus on portfolio management and plans for managing growth, we schedule a visit to their offices, or invite them to visit us.

 Investment Committee Recommendation
The investment committee meeting allows the team to gain a comprehensive understanding of the manager, and to confirm: the merit of the manager's investment process, their discipline in adhering to the process and avoiding style-drift, the sustainability of their competitive advantage, and the likelihood of future outperformance (as well as circumstances that could contribute to  underperformance over time).  If the manager has met all of our due diligence requirements and appears to be the best all around option available to our clients for a particular investment mandate, the committee will approve the manager for use in client portfolios.  At this point, we are highly confident that we have identified a manager with whom we can invest for the long-term.

 Ongoing Monitoring
After a manager makes it onto our Recommended List we continue to monitor the firm. The most important aspect of our monitoring process is a regularly scheduled "manager update" phone interview with the portfolio manager. In these calls we cover significant developments and changes in the portfolio, the team, the firm, etc., and we continue to test our original thesis for recommending the manager.

 

Securities offered through M Holdings Securities, Inc., a Registered Broker/Dealer, Member FINRA/SIPC. Investment Advisory Services offered through Molewski Financial Partners. Molewski Financial Partners is independently owned and operated and is a member of M Financial Group. Please go to www.mfin.com and click on “Disclosure Statement” at the bottom of the home page for further details regarding this relationship. Disclaimer

The principal place of business and the state of domicile for Molewski Financial Partners is: 100 Gateway Drive, Suite 300, Bethlehem, PA 18017. Phone: 610-865-2600.

Copyright 2008 Molewski Financial Partners

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