Comprehensive Wealth Management

At Johnson Investment Counsel, our investment management strategies are driven in large part by our companion financial planning services. Investment management should be one component in a larger strategy. Thus, we base our investment strategy on the goals, objectives, and risks laid out in a comprehensive financial plan.

Once we have established your unique objectives, we then design an investment strategy to achieve those goals while also minimizing risk exposure. The primary objective is to develop a strategy that will generate the long-term returns required by the financial plan.

Most financial experts will tell you that a diversified portfolio includes a mix of stocks, bonds, and cash. While that statement is generally accurate, the truth is that diversification goes much deeper. We evaluate different classes of investments within each group and also allocate investments based on time horizon, such as short-term, intermediate-term, and long-term assets. Below are some of the ways in which we may classify stock and bond investments.

Stock Market Investment Styles

• Company Size (large, mid, small)
• Investment approach (value, core, growth)
• Nationality (domestic vs. international vs. emerging market)

Bond Market Investment Styles

• Maturity (short, intermediate, and long)
• Quality (high, medium, or low quality)
• Nationality (domestic vs. international vs. emerging market)

We create a customized allocation based on your goals, time horizon, and risk tolerance. We also use quantitative analysis to to determine how a prospective investment may align with your views on risk and your ability to accept loss.

Another factor we consider is style trend or style tilt. Our analysis shows that style trends last for several years. These trends can significantly impact portfolio performance. As an example, assume domestic stocks are outperforming international stocks. We may increase domestic stock exposure to take advantage of this trend.

Finally, it’s important to maintain a flexible allocation approach. Flexibility allows us to take advantage of major macroeconomic, fundamental, or technical changes in the markets. We constantly evaluate a broad range of factors manage and adjust our client portfolios. Some of those factors include:

• The macroeconomic environment and its impact on portfolio returns.
• Fundamental investment attractiveness of certain investment classes.
• Technical characteristics of each class and style.
• Style trends.
• Manager performance and active vs. passive management styles, and
• Tax efficiency and tax impact on the overall financial plan.

When many clients start working with us, they have a variety of accounts spread across a range of institutions. They may have IRAs with former advisors, 401(k) plans with former employers, and possibly even self-directed investment accounts. We find it most effective and efficient to consolidate those accounts, as that allows us to manage your assets under a cohesive strategy that is aligned with your long-term goals.

Risk Controlled Portfolio Management

Many clients have ambitious dreams and goals that require growth that can only be found in equity markets. However, equity market assets can also be volatile and may bring unwanted downside risk.

At Johnson Investment Counsel, we use a risk-controlled strategy to limit downside exposure. We start with a mutual discussion in which we determine your appetite for risk. For example, we may determine that your maximum acceptable loss is 10 percent in any given year. More risk-averse clients may have a maximum risk tolerance of only 5 percent in any given year.
Your risk tolerance is based on your unique needs and goals. We use a combination of exchange traded funds, mutual funds, stocks, and options to reduce your downside exposure to the mutually agreed upon risk limit.

Keep in mind that some risk minimization strategies can be costly and time-intensive. It’s important to maintain a balance between risk management and cost. We often recommend risk management strategies for tax-deferred accounts.

Individual Stock Management

Johnson Investment Counsel often uses individual stocks as a component in investor portfolios. We base our buying and selling decisions not on short-term tactics, but rather on fundamental analysis and adherence to the client’s broad, long-term strategy. We generally target companies whose stock is selling at a meaningful discount to our target price.

The short-term inefficiency of the market often provides us with opportunities to make value purchases. Markets tend to overreact to news, both macroeconomic and company-specific. We identify these opportunities using quantitative screens, and we seek firms that exhibit:

• Attractive valuation characteristics (price/earnings, book value, cash flow, etc)
• Stable and attractive profitability
• Relatively strong balance sheets
• Positive momentum characteristics, and
• A target price significantly higher than its current market price.

This screening process may generate a substantial list of possible purchase targets. We further refine that list by using our quantitative model, which ranks stocks and calculates a fair value price and potential return. Our qualitative process helps us further narrow the list. Qualitative factors include things like:

• Historical trend analysis,
• Evaluating outside research, and
• Institutional holders

Our stock portfolios are well-diversified and usually hold between 40 and 60 individual companies. We limit individual positions to no more than 5 percent of the total portfolio value. Additionally, we limit sector allocations to the lesser of 30 percent or three times the S&P 500 weighting.

Of course, buying is only one half of the stock management equation. We also regularly sell stocks when they meet our documented sell criteria. Those criteria include:

• The ranking in JIC’s quantitative model falls to the bottom half of the universe,
• The target price is reached,
• A more attractive opportunity exists, or
• The stock’s fundamentals begin to deteriorate.

Enhanced Cash Management

Life happens. Sometimes even the strongest financial plans are rocked by emergency needs and unexpected expenses. At Johnson Investment Counsel, we believe that preparing for the unexpected is an important component of any wealth management plan.

We help you prepare for unexpected needs by using a tiered cash management program. The objective is to earn higher rates of return than would be found in money market accounts or certificates of deposit while still providing equivalent levels of liquidity.

We achieve this objective by using tiers relative to your historical cash flow and cash needs. The first tier is for immediate, short-term needs and usually includes highly liquid, low-risk securities. Subsequent tiers may have slightly less liquidity and higher potential returns. These tiers are meant for intermediate-term cash needs and they may include assets like short- and intermediate-term bonds, high yield bonds, and perhaps even some exposure to stocks. An option writing strategy could also be used to boost returns.

Ready to evaluate your investment management strategy? Let’s talk about it. Contact us today at Johnson Investment Counsel. We welcome the opportunity to evaluate your goals and needs and help you develop a strategy. Let’s connect soon and start the conversation.