Investment Selection

For each asset class recommended in an asset allocation analysis, specific investments can be recommended. Dynamic is very sensitive to investment management fees and therefore believes in the use of either performance-based fees or a Core-Satellite approach. A Core-Satellite approach is one where the Core (majority) of the portfolio would be invested in low-cost investments, such as Exchange Traded Funds (ETFs) or Index Funds for those asset classes that are considered efficient.* The smaller Satellite component will be used for inefficient asset classes and will often invest in professionally managed, and therefore more expensive investments, such as basic materials mutual funds, equipment leasing programs, or non-Traded Real Estate Investment Trusts (REITs). Because the majority of the portfolio would be invested in low-cost investments, the resulting portfolio, as a whole, is inexpensive, but still has the potential for outperformance due to the satellite allocation. We also believe in rebalancing the entire allocation on a regular basis. As a result of normal economic cycles, certain asset classes will perform better than others in any given year. Rebalancing is the process of trimming back on those that have done well (in favor) and using the proceeds to invest in those that haven't done as well (out of favor). Because cycles often reverse, rebalancing has been shown to increase return while keeping risk at its prescribed level.

*Efficient asset classes are those where there are so many investors chasing the same investment opportunities that few overlooked opportunities still exist. Why pay a money manager a large fee to attempt to find such investments, when many fail to do so? Instead, we will often recommend investing passively in such asset classes through index funds or ETFs.