Today private investors, entrepreneurs, and stewards of institutional assets all share the same difficult challenge: in a time of extreme low interest rate and financial turmoil, how can they achieve superior returns without jeopardizing their capital?
We have devised a strategy that has met considerable success over the past few years. We employ conservative asset allocation, aggressive asset selection, tactical asset shift and necessary hedging.
We value the preservation of capital over the occasional loss of opportunity; we buy stock only when it is trading at significant discount to its intrinsic value; we actively seek out opportunities created by regular episodes of market dislocation.
At Evla Hills, we take the time to get to know our clients.We review their current assets and expectations and assess their long term financial requirement and sensitivity to risk. We then develop personalized investment strategies and create customized growth and income portfolios to help each client build and protect wealth in a managed risk environment.
We invest directly in individual stocks and bonds on behalf of our clients. We very rarely buy mutual funds or ETFs. We believe this to be the most cost effective way to invest as the layer of fees charged by third party fund companies does not exist here.
We believe it is also the most tax efficient way of managing a portfolio as we have direct control over the harvesting of gains and losses. We also believe it offers the best long term potential for out-performance as it allows us to be long term patient investors.
Need Based Approach
Our investment portfolios are constructed based on clients’ needs. Those needs could include asset accumulation, retirement security and income generation.
Today, it is fashionable for investment advisors to fill your portfolio with funds from different categories such as Growth, Value, Large, Small, International and Emerging Markets.
We believe that filling the buckets approach leads to index like performance over the long term. In this context, the investor is much better served by buying an array of index funds and thus save the additional expense of an investment advisor.
Active investment management must necessarily strike a balance between diversification and concentration. If risk is not an issue, we would just buy our favorite company and be done with it. But the consequence of being wrong under such an approach is far too severe. On the other hand, we could buy a diversified portfolio of hundreds of companies. This in the end would just produce an index like return.
Once again, the investor would be much better served just buying index funds and saving the expense of an advisor. In a typical client portfolio, depending on asset size, we carefully select around 15 or so stocks and a diversified array of fixed income securities.
We believe the marriage of stocks and bonds in such an arrangement leads to supreme long term performance with lower volatility. It is the perfect antidote to a low interest rate environment.
Total Balance Sheet Investor
We are students of corporations at heart. We bring a rigorous analytical approach to our asset selection process, employing both quantitative and qualitative research techniques to choose the most promising stocks and bonds for our portfolio.
Depending on client risk tolerance, typical client portfolio will include a balance of blue chip stocks, emerging growth stocks, special situation companies and a selection of investment grade as well as high yield bonds.
As investors, we can choose to own the company by buying its stock or loan to the company by buying its bonds. At times, we can even choose the middle ground by buying convertible securities.
As we study companies, we are not merely interested in owning the common stocks, but are open to all the possibilities. That is why we call this approach the Total Balance Sheet Investor.
We believe that risk management is as important as stock selection. Our investment style – buying securities below intrinsic value – provides investors with an underlying margin of safety. Investing in companies with significant tangible assets or strong dividend policies adds further downside protection. We also manage risk through portfolio diversification and position limits.
Monitoring & Assessment
We monitor each portfolio on a daily basis to ensure that every asset continues to meet our fundamental quality and performance standards and that each portfolio’s strategy mix remains aligned with the client’s objectives. We may also hold cash equivalents when market conditions warrant.
Disciplined Sell Criteria
We utilize clearly defined sell criteria to realize profits and maintain our portfolio risk profile. On the upside, we generally sell a position when it reaches our valuation target. Conversely, a position is generally sold if there is a negative change in the company’s outlook, or significant deterioration in any key performance measurement. An investment position may also be sold or reduced if a more attractive opportunity is identified.
We utilize hedging strategy to manage tax efficiency and downside protection. In taxable accounts, we strive for long term capital gains whenever practical. We may sell covered calls or buy puts on positions that have reached our price target, yet haven’t obtained long term holdings status.
We also use option puts or reverse market ETFs to protect our portfolio during times of extreme stress either due to geopolitical factors, unexpected economic slowdown or elevated market valuation.