Investment Philosophy

We believe that successful outcomes are a result of a disciplined approach:

• Asset class exposure drives long-term investment returns
• Diversification across asset classes can reduce downside risk and improve returns
• Capital markets are mostly efficient and excessive investment costs can be eliminated
• Rebalancing is a cornerstone of a disciplined process

Our Bucketing Approach

• We use a bucketing approach (Equities, Diversifying Strategies, and US Investment Grade Bonds) to manage portfolios.
• Each asset category has different drivers of investment returns and risks.
• MCF builds each bucket and then allocates a percentage of assets to each bucket based on the client’s objective.

Equities

• Description: Operating businesses with long-term capital growth potential
• Investment Characteristics: Subject to high volatility due to cycle nature of economic factors
• Common Market Indices: Dow Jones Industrial Average (“Dow”), S&P 500, MSCI EAFE (Europe, Far-East, and Asia), MSC Emerging Markets Index
• Asset Category Examples: US and International Equities

U.S. Investment Grade Bonds

• Description: Debt instruments with full economic stability, preservation of capital and high liquidity
• Investment Characteristics: Low volatility, low correlation to equity risk, low credit risk
• Common Market Indices : Bloomberg Barclays US Aggregate Bond, Bloomberg Barclays U.S. Government/Credit 1-3 Year, Bloomberg Barclays US Treasury
• Asset Category Examples : US government bonds and high-quality US corporate bonds (BBB-rated or better)

Diversifying Strategy Investments

• Description: Investments that tend to move independently of equities and US Investment Grade Bonds
• Investment Characteristics: Potential for returns to exceed long-term inflation
• Common Market Indices: Bloomberg Barclays Global Aggregate Bond ex USD, Bloomberg Commodity, Bloomberg Barclays High Yield
• Asset Category Examples: International and High Yield Bonds, Commodities, Absolute/Real Return strategies, Private Equity, Private Debt, & Direct Real Estate

Market Efficiency Views

Definitions:

Efficient Market – prices reflect known information, low probability to outperform the index/benchmark

Inefficient Market – market anomalies exist, less coverage, potential to outperform exists

Passive Investing - attempt to match/replicate the index/benchmark

Active Investing – attempt to outperform the index/benchmark

Why Passive for Efficient? Generally low cos broad exposure, not worth paying higher fees for low probability of outperforming the index/benchmark

Why Active for Inefficient? Greater potential for out-performance, may reduce risk, but fees higher

Potential areas to mix A & P? In moderately efficient or less inefficient markets, mixing passive and active still provides broad market exposure but with a potential to outperform, while keeping costs low