Portfolio Review Case Study

 
Meet the Brown’s
Carl and Shannon Brown* wanted advice as to how to manage their investment portfolios with the objective of maximizing capital growth over the next ten years. Carl and Shannon operate a family business “Brown Contracting”. Lately, Shannon has felt uncomfortable with the ups and downs of their investment portfolio and decided to get a second opinion.
*fictitious names
 

Portfolio Review
Having obtained a full detail of Carl and Shannon’s statements we noticed the majority of their portfolio was invested in six mutual funds. Looking under the hood of these mutual funds we identified three red flags that would undeniably interfere with their long term objectives.

Not properly diversified. “Know what you own, and know why you own it.” – Peter Lynch The Browns thought they were properly diversified holding large cap mutual funds. However, when looking inside these mutual funds we noticed a severe commonality among them. They all contained a large position of the same financial stock “Bank A”. This caused their portfolio to be very vulnerable to the specific behavior of one company. Additionally, removing “Bank A” could only be done by selling the entire mutual fund. The Browns lacked personal control. Carl and Shannon could be in full control of their future with a Separately Managed Account (SMA).

SMA’s are tailored portfolios where you have the ability to directly own what’s under the hood. Unlike a mutual fund, with a tailored account the Browns could easily unload specific securities faced with problems.

 

Lack of risk assessment. Carl’s business is very sensitive to the overall state of the economy. Brown Contracting operates in a highly cyclical industry, when the economy is booming he enjoys profits and conversely when the economy suffers he does too. Most of the Brown’s personal investments are already in the company which greatly exposes them to swings in the business cycle. Carl can offset his business risk through his portfolio by adding risk reducers.

Risk reducers are assets that are uncorrelated to the general market such as alternative investments. Using alternatives can smooth out the bumps over the next ten years.

 

Fees, Fees and more Fees. Carl and Shannon were overpaying in fees. Management Fees also known as management expense ratio (MER) were too high. The Browns were holding a total of 6 mutual funds with an average MER of 2.5%. Furthermore, commissions were eating away at their returns. These are called loads and are what their advisor was receiving as a commission. Front-end loads were 5% for a few of their mutual funds which meant Carl and Shannon had to earn more than 7% just to break even. Carl and Shannon qualified as accredited investors+ and could easily reduce their expenses by choosing a fee based Manager.
 
+ For more information on accredited investor

Fee based managers are paid on results and not transactions. The fee structure gives the Manager the incentive both to preserve capital and to increase the value of the portfolio.

 

 

Free Portfolio Review

Does your portfolio need a Second Opinion? We can give you an unbiased assessment. One of our Portfolio Managers will produce a detailed report and assess whether your investment portfolio is designed to help you achieve your financial goals and needs.

Experience the MacNicol & Associates difference and get your retirement plan back on track.
 
What you will receive

  • A detailed analysis of your portfolios risk and return
  • Tax efficiency of your portfolio and report where you can save tax dollars
  • Review total fees you are paying and report if you are getting the best value for your money

 
What we need

  • A copy of your statements
  • OR
  • A list of your portfolio holdings if you prefer not to disclose statements

 

All reviews will require an in person appointment to deliver the information.

Please call us today to schedule your no obligation portfolio review.

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You can fax statements to: (877) 215-4044

Alternatively you can fill out the brief form below, include a copy of your most recent statement and we’ll follow up to schedule your no obligation portfolio review.