One of the ways Marshall Financial Group (MFG) delivers value is through the work done by our investment committee, which meets every other week to review all the individual holdings in MFG’s portfolio. Each of the four members of the committee is responsible for tracking and researching a specific asset class including large cap, small cap, mid cap, bonds, etc. When committee members meet, they share their analysis and make recommendations about whether to keep MFG’s positions as a hold (no change), watch, or sell. After rigorous discussion, the group decides whether or not they should make a change.
Anthony Pugliese, AIF®, Partner, Director of Investment Management, Senior Financial Advisor at MFG, who leads the investment team, answered questions about the committee’s work and how it impacts clients.
Q: What outcomes are the investment committee trying to achieve?
Pugliese: Each client’s investment portfolio is based on the risk category they fit into, so our goal is to maximize what our clients’ investments are doing based on that risk level. There are five risk levels: aggressive, moderately aggressive, moderate, moderately conservative, and conservative. Once we know a client’s risk level, their portfolio is based on that, and their investment performance should meet industry benchmarks for that risk category. Staying in line with those benchmarks is how the client stays on track to achieve their long-term goals – and that’s where the committee comes in. Our goal is to take what you’re invested in and make sure it’s doing at least what that benchmark is doing. But really, what we try to do is outperform the benchmark.
Q: When you’re deciding whether or not to make a change to the portfolio, what do you base your decisions on?
Pugliese: A lot goes into the process. For each of the five risk levels, the investment committee has three models, and we roll the performance of all three of those models together to come up with a cumulative performance that serves as an alternative to the industry benchmark. There’s a lot of data and statistical analysis involved. When we’re doing research, we use multiple resources and pool them together, which helps make sure our information isn’t slanted or prone to any hidden biases. We also leverage wholesalers and portfolio managers from different investment companies. A few times a month we’ll meet with a portfolio manager from one of the funds we’re using, so that we hear from the horse’s mouth what their strategy is and what their thought process is. We actually get the person in charge of that particular investment to meet with our group so we can hear from them directly. That’s a regular part of our process.
Q: Then how do you decide if you’re actually going to make a change?
Pugliese: If something ends up on our watch list, we try to have a conversation with the manager of that particular fund just to see what’s going on. We want to evaluate if the problem is a one-off or more of a trend. This is particularly true for Exchange Traded Funds (ETF). If we start to notice a trend that something is falling behind, that triggers us to have some conversations, reach out to the fund manager, and see what’s going on. There’s a lot that goes into the decision to make a change. Each of us will do our own research, but then we bring it all together cumulatively to discuss and decide what to do.
Q: Is the approach at MFG different from other firms?
Pugliese: The main difference is that we try to use individual stocks where we can for growth and sector diversification. Mutual funds are a common choice in our industry, but we try to stay away from them because they typically have a high management charge within the fund. Instead, we opt to do that hands-on management work ourselves. We also do a lot of our own research in-house, rather than using third party money managers, because they also come with additional fees for management. In that sense, the work done by the investment committee allows us to deliver real value to our clients.
Q: How does the investment committee’s work impact clients?
Pugliese: What we do on the investment committee makes it possible for MFG to be proactive and often stay ahead of some of the market trends by making bigger allocation changes. That capability benefits our clients. For instance, at the end of 2021, based on our committee’s analysis, we expected interest rates would start to rise, which would have a negative effect on the bond market. Based on the expectation of rate hikes, our committee decided to actually decrease our bond allocation pretty significantly across the board for each risk category. Then we took those assets and split them up between some dividend-paying stocks and some alternative asset classes. In early 2022, when interest rates were continuing to rise, we put what’s called a buffered ETF into our portfolio which utilizes an option strategy to create a buffer downside protection on the asset. Making those moves to counteract rising interest rates really protected our portfolio during a pretty volatile period in the market.
Q: What’s the most important thing you want clients to know about the investment committee?
Pugliese: We’re not trying to time the market. What we are trying to do is make sure we are proactively allocated and properly diversified. Sometimes that means making allocation shifts here and there outside of what most would consider a traditional portfolio based on risk, but everything we do is thoroughly researched, vetted, and reviewed. We have a good team with a solid track record.
If you have questions about MFG’s investment committee, please contact us to learn more.