Whether you are a high net worth client or in the beginning stages of saving for retirement, certain objectives and strategies remain consistent. We believe that a diversified portfolio is extremely important, and that a diversified portfolio requires investments that do different things. Owning a handful of mutual funds that all buy stocks does not get the job done in a globalized and highly-interconnected economy. It is also vitally important to minimize large losses, even if you have a long way to go before retirement. The importance of avoiding large losses is obvious for those in retirement or close to it, but the time lost recovering from large losses can ruin the long-term plans of young investors as well.
The common way to view risk assumes that large losses are more acceptable if you have a long time horizon, or if you simply have a higher "risk tolerance," whatever that means. This is why many standard risk questionnaires ask questions such as "how would you react if your portfolio dropped by 25% (or more)." We don't believe that large losses are acceptable regardless of the age of a client or how they would theoretically feel about a large loss. Although we believe that the stock market is an excellent place to build wealth, we are constantly on the lookout for investments that can help lower volatility and make returns more predictable and steady. This translates into a number of asset classes that you won't find in most cookie-cutter portfolios.
Industry Sector Stock ETFs - Our preferred strategy to get exposure to the stock market is through Sector ETFs (Technology, Healthcare, Energy, etc). We believe that control at a sector level provides better diversification than traditional mutual funds that are oriented around company size (small cap/large cap) or where a company's headquarters happens to be located (U.S./foreign). Using Exchange Traded Funds (ETFs), which can be bought and sold just like stocks, enables a systematic strategy to get more conservative if and when the stock market deteriorates, and a systematic strategy to get more aggressive as the market recovers.
Energy Limited Master Partnerships (MLPs) - Funds that invest in Energy MLPs seek to profit from energy infrastructure, such as pipelines and storage facilities. They tend to be dividend-heavy, and are often non-correlated to other forms of energy investments.
Long-Short Funds - The vast majority of stock mutual funds are only allowed to buy stocks. Long-short funds can also short stocks (i.e. profit when a stock price falls) with a portion of their portfolio. In a strong bull market that lifts all stocks, long-short stocks will often under-perform if a portion of their holdings are held short. On the other hand, if most of the market falls, a long-short fund's short positions can help shrink losses. In between extremes in the market, long-short funds attempt to outperform by buying stocks in strong sectors and shorting stocks in weak sectors.
Managed Futures - Mutual funds that use commodity futures contracts instead of stocks tend to work best when the market is trending, either up or down. Because downtrends tend to be better-defined and sharper than uptrends, Managed Futures funds can provide a good hedge against bear market conditions.
Business Development Companies (BDCs) - These publicly-traded companies lend money to mostly mid-size companies and tend to make the bulk of their returns from the income generated by the loans. The yield generated by a BDC tends to be related to the quality of the loans (e.g. senior secured dept will have a lower yield than unsecured subordinate debt). Veripax tends to use companies that target high-quality debt but can still generate attractive dividends.
Secured Income - A description of Secured Income investments that Veripax uses can be found on the Alternative Investments page. In general, funds that fall into this category are income-oriented, and "secure" the income with tangible property such as business-critical equipment or 1st Trust Deed mortgage notes. We refer to some of these investments as the "financial equivalent of watching paint dry." In other words, they can be very boring, but sometimes boring is exactly what we're looking for.
Real Estate - We believe that direct investment in real estate can be a good hedge against inflation as well as a great way to build wealth. Real Estate tends to be more volatile than other investments, so we use it to add a little "spice" for high net worth client portfolios.