Investment Philosophy
Managing Stock Market Risk - The Asset Allocation Decision
The foundation of our investment philosophy is a belief that portfolio allocation must be based on a careful assessment of market risk.
Portfolio Asset Allocation is one of the most important decisions that can be made regarding the design of an investment portfolio. What portion of the pie do you put in stocks, bonds or hold back in cash reserves? And, when do you make adjustments?
If you look only at the long-term returns offered by each of those three asset classes, it would seem that stocks, which by far have offered the greatest long-term investment return, would be the easy choice. But it's not that simple. While stock returns have towered over cash and bonds over the long-term, there have been many shorter term periods of time where that has not been so. In an attempt to offer a "one size fits all" solution to the question of asset allocation, a typical institutional approach towards answering this question has been simply to divide an investment portfolio between stocks and bonds, usually revolving around a base allocation of say, 60% stocks and 40% bonds.
A Different Approach
At BCM, we do not take that approach. Our research has led us to conclude that the value of stocks and bonds is enduringly linked to the level and direction of interest rates, inflation and economic growth.
We have exhaustively looked at historical monetary, financial, and economic trends, quantified benchmark changes within those trends, and have noted the market's historical response. As a result of this work, we do not adhere to a fixed allocation between the main asset classes as so many investment managers do. Rather, we take an active approach to asset allocation using our BCM Stock Market Risk Model as our guide. This proprietary model suggests to us at any time the degree to which we might choose to be more or less heavily weighted towards stocks, bonds or cash.
Full Market Cycle Performance and Advantage
The investment objectives of Billeaud Capital Management are long-term and "full cycle" in nature. We place very little weight on tracking the market over short periods of time. Because of our emphasis on risk management, BCM returns may periodically differ from the returns of the various market indexes.
While we may diverge from the performance of the major market indexes over shorter-term periods, we do expect that our risk-management discipline will outperform these same indices over a complete market cycle (bull and bear markets combined). By following the guidance of our proprietary, self-developed, in-house research, we hope to achieve this full-cycle outperformance by realizing competitive returns during favorable market climates and by managing risk and protecting capital during unfavorable market conditions.
Investment Selection
Once the allocation decision has been made, the task of security selection begins. At BCM we are very particular regarding what type of securities we are willing to own. Our twenty-two years of experience managing client risk, return and expectations has convinced us that for most needs, a group of well diversified, thoughtfully selected mutual funds, dividend-paying stocks and investment grade bonds make for an efficient and cost-effective solution.
At BCM, our entire suite of portfolio management tools - which most importantly includes our proprietary Asset Allocation Model - offers us the ability to design an investment portfolio to match your needs, risk tolerance, and preferences.
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