Chapin Hill’s investment philosophy is that we are currently experiencing a secular bear market. If this observation is correct, traditional investments are likely to yield low to moderate rates of return.  An alternative style of investing is known as core and satellite and has been long employed by pension managers.  In 2003, Chapin Hill adopted this style for all of their investment clients.

 The Core Portfolio is a typical asset allocation utilizing the broad asset categories of stocks, bonds and cash.  These models are created and updated by the research department of our broker dealer, Linsco/Private Ledger.  These portfolios have documented track records and we use these to help clients decide on how much downside risk they are willing to tolerate if we experience another big downswing in the equity markets.  The Core generally comprises 60-80% of a clients actively managed assets (inherited stock, company stock and other situations are held in “offline” accounts and not considered part of the core and satellite until, or if, they are liquidated).

 We utilize a total of 6 core portfolios with varying degrees of exposure to each asset category.  The more conservative a portfolio, the more exposure it will have to bonds and cash.  As the equity allocation increases, the equities are further divided into large, mid, small and international classes and again divided into growth and value styles.  The equity allocations are implemented utilizing either separate account money managers, mutual funds, exchange traded funds (ETF’s) or a combination of any or all of these three management techniques.

 The Satellite Portfolios are portfolios which are designed to potentially do one of two things:

1. we expect an asset class to out-perform over a period of time, or
2. we are seeking performance which is non-correlated with the core portfolio’s asset classes

 If we believe any asset class will out-perform over the next 6 months to 2 years, we will add to this asset class through a dedicated satellite and implement again with multiple money managers, mutual funds, ETF’s or possibly a combination of these.  Examples of these assets classes could be an international portfolio, a small cap portfolio, a large cap growth portfolio and so on.

 If we believe an asset class will give us non-correlated performance over an extended period of time, we will dedicate a portfolio to this asset class and seek to diversify within the satellite portfolio. We seek to control risk by limiting the allocation to any one investment vehicle and sub asset class within the portfolio. Examples of these portfolios could be commodity, fund of funds, tactical, real estate, etc.

 We are very market sensitive and time both the initial implementation of core portfolios as well as the satellites. We utilize both inverse funds and ETF’s as well as positive funds and ETF’s in a number of the satellites to attempt to take advantage of the market’s short term trends.  For example, if we feel that an index or a series of indices may decline over the next month or quarter, we will add one or more funds which go up if the index drops. These are called inverse funds and they may be managed to provide 100%, 200% or even 250% of the indices return. If the timing is correct, these can both protect a portfolio and add on return.

 We seek to minimize risk by limiting the size of our positions and by analyzing in advance what type of downside risk tolerance the client feels they can assume. Our goal is to provide absolute return although we cannot guarantee any type of performance and past performance is not guaranteed.