Our Approach and Philosophy
MCF assists each client to identify and tailor their long-term investment objectives to goals that are representative and suitable to their personal situation. We typically execute this by evaluating their current financial condition through the preparation of a financial plan or through an interview process where the client’s willingness to take financial risk is assessed. MCF will recommend a diversified investment strategy or asset allocation portfolio design for the client around this assessment. While our portfolio designs are intended to be diversified in order to mitigate investment risks, there is a risk of loss of both income and principal.
We believe in the long-term power of broad market exposure. We also believe that markets are mean reverting in the long run and market outliers are not sustainable or persistent over time. The combination of our beliefs in market efficiency and mean reversion is key to what drives long-term investment success: capturing market returns over time. We strive to achieve long-term investment success by minimizing investment costs (transaction fees, fund expenses, and taxes) and reducing risks of volatility, loss of purchasing power, and permanent loss of capital. We believe diversification across multiple asset classes will reduce downside risk and benefit portfolios across a full market cycle. By controlling excessive investment costs and employing a well-constructed, diversified portfolio, we expect to capture market-like returns over time with less downside risk, delivering higher risk-adjusted returns for the investor.
MCF applies its philosophy through the management of goals-based, asset allocation portfolios. Each portfolio is constructed to achieve an attractive return given a desired level of risk (based on the IPS), which is controlled through diversification. The portfolios adhere to a Core + Complement strategy. We utilize broad-based, low cost, passive/index funds as core holdings to gain broad exposure to efficient markets. To complement our core holdings, we opportunistically use more targeted positions for differentiated exposure, proactively allocating away from each portfolio’s strategic (long-term) asset allocation based on current market conditions, relative valuations, and our proprietary capital market and economic outlook. The use of tactical asset allocation and positioning is intended to take advantage of short-term deviations from an asset class or investment’s long-term efficient characteristics. Complementary positions and actively managed funds are used when the IC feels an index fund does not represent efficiently the Committee’s desired asset class exposure or the Committee has high conviction regarding abnormalities in valuation levels, fundamentals, or other characteristics. The IMD and IC coordinate efforts to be responsive to changing markets, balancing risks and providing more consistent returns to help clients achieve their goals.
Asset allocation does not ensure a profit or guarantee against loss, it is a method to help manage investment risk. Investing in securities involves risk of loss that clients should be prepared to bear.
Material risks involved in MCF’s investment strategies/methods of analysis. MCF believes investment success comes from focusing on risk management. Risk management is the process of monitoring certain aspects of the portfolio so that it does not take on more risk than desired. We continually analyze the economic landscape as well as portfolio specific data such as asset class correlations, asset class volatility, beta, downside risk, tracking error, sector exposure, yield, duration, and credit quality, among other criteria. In order to minimize risk in our portfolio designs, MCF feels that asset allocation or the process of diversifying money across different asset classes maximizes return and minimizes risk. In MCF’s opinion, no one knows for certain what will be the best and weakest performing asset class in a given year, which is why we have exposure to multiple asset classes in our portfolio designs.
Types of investments typically recommended and material risks involved. In implementing our asset allocation process to a client’s portfolio, we may invest in mutual funds, exchange traded funds (or notes), individual equities, and individual fixed income. MCF also provides advice to clients who qualify for private placements, hedge funds, and other alternative investments. In determining the client’s long‐term investment objectives, we help clients understand the inherent risks involved in investing in capital markets. As with all investment securities, there is a risk of loss of both income and principal. Clients should not assume that any investment will be profitable or achieve any specific performance level.
Please Note: Private investment funds generally involve various risk factors, including, but not limited to, potential for complete loss of principal, liquidity constraints and lack of transparency, a complete discussion of which is set forth in each fund’s offering documents, which will be provided to each client for review and consideration. Unlike liquid investments that a client may maintain, private investment funds do not provide daily liquidity or pricing. Each prospective client investor will be required to complete a Subscription Agreement, pursuant to which the client shall establish that he/she is qualified for investment in the fund and acknowledges and accepts the various risk factors that are associated with such an investment.
Index Definitions. The following indices, and their respective historical returns, were used to develop our Long-Term Risk-Reward Profiles for certain diversified investment strategies.
S&P 1500 Index: Measures the performance of 500 widely held stocks in US equity market.
MSCI ACWI ex USA Investable Market Index (IMI): This index is a free float adjusted market cap index designed to measure the combined equity market performance of developed and emerging market countries, excluding the US.
BbgBarc Global Agg ex US Index: Measure of global investment grade debt from 24 local currency markets, multi-currency.
BbgBarc US High Yield Composite Index: Measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody's, Fitch and S&P is Ba1/BB+/BB+ or below.
Bloomberg Commodity Index: Is calculated on an excess return basis and reflects commodity futures price movements.
Bloomberg Barclays US Aggregate Bond Index: is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.
BbgBarc US Govt/Credit 1-3 Year Index: This index includes all medium and larger issues of U.S. government, investment-grade corporate, and investment-grade international dollar-denominated bonds that have maturities of between 1 and 3 years and are publicly issued.
BbgBarc US Treasury 1-3 Year Index: Measures US dollar-denominated, fixed-rate, nominal debt issued by the US Treasury.