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WHAT IS ADVISORS CHOICE?

Advisors Choice is an objective and efficient methodology to select a group of investments within the client’s risk profile. The goal is to make the investment selection process flexible, customizable and simple. Using Advisors Choice frees up time spent on the investment selection process, so that you can focus more time on other growth areas of your business.  By partnering with Riskalyze we have built a methodology to quantitatively measure a client’s risk profile and match that profile to a portfolio with similar risk characteristics.

Sowell has done the heavy-lifting required to create an intuitive solution on the front-end, while managing the ongoing due diligence process on the back-end. The result is a simple but powerful vehicle to provide a logical, managed approach to meet your client’s investment needs.

SOLVING AN ISSUE FOR ALL FINANCIAL ADVISORS

Advisors spend too much time making investment selection decisions for each client while they could be focusing on growing other areas of their business.  According to BlackRock, a study by Cerulli Associates* indicates that advisors can spend more than 450 hours a year on daily investment management functions. Additionally, in many instances, the investment selection process is not clearly defined, objective, or repeatable.

* Cerulli Associates, “U.S. Advisor Metrics 2016: Combatting Fee and Margin Pressure. Time savings estimation assumes 20% time savings x a 45hr work week x 50 weeks per year = 450hrs saved.

ADVISORS CHOICE – THE SOLUTION
GROWTH, INCOME AND RISK

We believe that considering these three metrics within the investment selection process defines a successful client portfolio over the long term. Tracking and measuring these metrics for each client portfolio requires active oversight within the dynamic investment landscape.

Advisors Choice simplifies the investment selection process to consider just these three metrics. By utilizing the Riskalyze technology, Sowell has quantified the Advisors Choice models to assign each model a Riskalyze score. Considering that score, in combination with the client’s growth and income goals, we have built a matrix which assists advisors in matching these considerations quickly and objectively.  By balancing the three considerations, investment choices are more intuitive for both advisors and clients. Sowell has used both internal and third-party models to build the platform. Our third-party partners have been vetted by Sowell and have been selected to target specific points within the Advisors Choice product matrix.

HOW DOES IT WORK?

The matrix provides flexibility in targeting a specific risk profile, by allowing advisors to mix and match different choices on the grid to offer a custom solution to clients.

Single points on the grid can also be combined with the current advisor portfolios to help structure the risk profile of those portfolios. The combinations of your current investments and Advisors Choice options can fine-tune your client’s portfolio to specific goals on each metric. These considerations can be dynamic as the client profile changes. For example, as the client risk profile changes with age, the adjustment can be made by choosing a risk score alternative from our grid.

A FINAL CONSIDERATION

There are only 24 hours in a day. A core consideration for advisors is ensuring they have enough time to provide the level of service each client deserves. While knowing our team will focus on trading, rebalancing and constant monitoring of the underlying securities, you can rest assured that your client will have an active management plan, monitored by our dedicated trading team, freeing you up to focus on growing your business.

Advisors Choice Partner Models

  • Believe concentrated “best idea” portfolios offer the greatest potential for alpha generation.
  • Believe risk is better managed by buying with a margin of safety and a focus on preservation of capital rather than traditional portfolio risk metrics.
  • Believe in a bottom-up fundamental research process focused on good businesses trading at a discount to our intrinsic value estimates.
  • Believe in holding cash when bargains are not available.
  • Construct highly concentrated (10-25 stocks) long-only equity portfolios consisting of best ideas.
  • Manage risk by focusing on preservation of capital and investing with a margin of safety.
  • Committed to being benchmark agnostic, which has historically yielded low correlation.
  • Willing to hold cash when we are unable to uncover bargains.
  • Invest with a private equity approach to the public equity markets.
  • Anchor’s investment philosophy is bottom-up and value-oriented.
  • Initially a broad universe is screened using different valuation criteria: low valuation (low P/E, P/CF, etc.), high dividend yield or dividend growth, and a discount to private market value.
  • Analysts then do fundamental research to develop the value thesis and identify a trigger for the recognition of value.
  • Anchor strives for its portfolios to have a higher yield, lower P/E and higher growth than comparable indices such as the Russell 1000 Value.
  • The firm’s Investment Committee approves all new stocks prior to inclusion in the portfolio.
  • Stocks are sold if the fundamentals deteriorate, if they reach our price objective, or if a more attractive investment is found.
  • Construct a portfolio of blue chip U.S. companies with the following attributes:
    • High-quality and liquid balance sheets
    • Durable cash flows supported by attractive relative cash flow margins
    • Attractive and growing dividends
    • Attractive relative valuations
  • Proprietary thirteen factor model
  • Systematic, intuitive, and repeatable investment process
  • 34 equal-weighted holdings across nine sectors with four positions in each sector (two in telecommunications sector)
  • Equal-weighted portfolio provides greater industry diversification and mitigates allocating capital to overbought sectors
  • A Flexible US Equity and Bond Rotation Strategy: A US asset allocation solution that dynamically participates in US equity sectors, styles, bonds and cash.
  • Dynamic Positioning to Manage Downside Risk: RiskSwitch™ indicator to identify “risk off” regime to posi-tion in bonds or cash.
  • Outperform the Benchmark over a Full Market Cycle: The strategy tactically positions in asset classes and sector/styles in order to outperform a moderate balanced portfolio as well as the S&P 500 Index over a full market cycle with lower risk.
  • KA Managed Income is designed to generate stable above average total return, benefiting from high dividend income plus capital appreciation, with low drawdown.
  • Quantitative investment process
  • Opportunistically benefits from high dividend yielding securities
  • Actively managed to mitigate risk
  • The quantitative model determines the overall buy/sell bias by looking at a variety of bond and equity data inputs on a daily basis
  • Quantitative process eliminates discretionary biases when determining the best opportunities to allocate into higher yielding securities
  • Constantly monitors the efficiency and effectiveness of the model in response to changing economic and market environments
  • A core US equity strategy designed to protect clients in severe down markets and participate in up markets
  • Implemented with liquid large cap sector ETFs and cash – and nothing else
  • Adapts to the market environment
  • Sectors are either fully owned or not owned, depending on outlook
  • During “normal” market environments the portfolio would typically own most or all sectors
  • In times of stress it would hold fewer sectors, potentially holding cash positions up to 100% of the portfolio
  • Sector calls driven by an adaptive quantitative investment engine designed to avoid significant loss
  • At RiverFront, we offer Fixed Income, Balanced and Equity Solutions for a range of investment objectives and risk tolerances.
  • We have defined to align with client investment needs from all fixed income to all equities, ranging from the most conservative at the top to the most aggressive at the bottom.
  • The Balanced strategies and Global Growth, combine RiverFront’s strategic asset allocation process, which uses our Price Matters® mean reversion methodology, with shorter term tactical tilts within the portfolios as market conditions warrant.
  • International Opportunities and Dynamic Fixed Income use our global macroeconomic analysis and quantitative modeling to create portfolios that are flexible and broad in both mandate and implementation.

Riverwater utilizes a stock screening methodology called the Three Pillar Process which identifies stocks trading below their intrinsic value.

RWP Large Cap Portfolio

  • Seeks long-term capital appreciation and invests primarily in dividend-paying, large company common stocks with market capitalization generally exceeding $15 billion at time of purchase.
  • The strategy will hold a concentrated portfolio of approximately 20-35 holdings.
  • The portfolio is typically fully invested; however, the manger may hold higher amounts of cash during atypical market conditions.
  • For diversification purposes, the strategy will limit sector weightings to +/-10% of its respective benchmark, the Russell 1000 Value Index.

RWP SMID Cap Portfolio

  • Seeks long-term capital appreciation by investing primarily in small and mid-size company common stocks with market capitalizations generally greater than $250 million and less than $20 billion at time of purchase.
  • The strategy will hold a concentrated portfolio of approximately 20-35 holdings.
  • The portfolio is typically fully invested; however, the manger may hold higher amounts of cash during atypical market conditions.
  • For diversification purposes, the strategy will limit sector weightings to +/-10% of its respective benchmark, the Russell 2500 Index.
  • The TPM Go Go Growth strategy invests in a maximum of 14 top-ranked stocks that are highly rated, sector leaders, and are believed to be positioned to perform in a fashion that harkens back to the days of the Nifty Fifty.
  • The “G3” is a subjective growth strategy where stock selection is derived predominately from Investor’s Business Daily stock analysis tools that screen for both fundamentally & technically superior stocks.
  • Triumphant believes that by investing at the “sweet spot” where technicals and fundamentals confirm each other, investors can reduce the chance of investing in laggards and increase the probability of investing in stocks that are positioned to perform well.
  • The strategy employs proven disciplines in both the timing of the proper purchase point (entry), as well as a strict loss-limiting sell discipline (exit).
  • Ideal Investors: IRA accounts, after-tax investors with carryover losses seeking realized gains, and investors desiring growth of capital but who prefer to have a proactive strategy in place to limit losses in a declining market. Turnover is expected to be 100% + annually.
  • The portfolio avoids investments in companies that are directly involved in the following: pornography; gambling/gaming/casinos/lottery; manufacturing of alcoholic beverages; recreational marijuana; tobacco; abortion & abortion inducing drugs; manufacturing of violent video games; & prostitution.

Focus Growth Strategy Objective: seeks to invest in large-cap stocks with high projected earnings growth to provide stronger returns than the Russell 1000 Growth Index.

Dividend Strategy: seeks total returns from both capital appreciation and dividend payments. We focus on companies with attractive valuations, strong dividends and low risk characteristics. This strategy is benchmarked against the Russell 1000 Value Index.

Sowell Management Models

The eight models in our AMP series are designed using strategic asset allocation, meaning that we designate specific equity to fixed income allocations for each portfolio, and rebalance and reinvest to keep portfolios aligned with those allocations. This differs from a tactical strategy, where allocations would change based on market-timing models.

The target allocations between stocks and bonds are as follows:

AMP Income (15% stocks/ 85% bonds)

AMP Total Return (29/71)

AMP Income and Growth (45/55)

AMP Conservative (56/44)

AMP Balanced (68/32)

AMP Growth (80/20)

AMP Global Growth (80/20)

AMP Aggressive Growth (94/6)

The AMP models are unique in that they are designed using mutual funds as investment vehicles. These mutual funds are hand-picked by Sowell’s investment committee, ensuring clients have access to best-of-breed managers within each asset class. For clients who believe that active management can drive superior returns, our AMP series gives clients exposure to institutional class mutual funds, without the requirement of a large initial investment.

The eight models in our Classic series are passively managed and are designed using index ETFs to gain a broad exposure to the market without requiring a large initial investment. Passive allocation strategies stem from the idea that markets are efficient (meaning that all available information is already priced into the market) and that active management doesn’t provide value in the long-term. Equity to fixed income allocations of the Classic portfolios are as follows:

Classic Bond (0% stocks/ 100% bonds)

Classic Total Return (20/80)

Classic Income and Growth (30/70)

Classic Conservative (40/60)

Classic Balanced (65/35)

Classic Growth (85/15)

Classic Global Growth (85/15)

Classic Aggressive Growth (100/0)

The Classic series is unique because it represents an inexpensive way to invest in a wide range of securities utilizing just a few holdings, keeping transaction costs low.

The three models in our Flagship series are made up of around 30 individual stocks each. Each model has a sector allocation benchmarked to the current sector allocations within the S&P 500, but the individual stock selections in those sectors are chosen using different parameters for each model. Breakdowns of the three Flagship models are as follows:

 

Flagship Dividend

Approximate number of holdings: 30

Selection process: Does not strictly look for the highest dividend yielding stocks. While the base yield is set at 2%, the model screens for stocks exhibiting consistent dividend growth as well as price appreciation to avoid value traps.

 

Flagship Equity

Approximate number of holdings: 30

Selection process: The model evaluates more than 20 factors to determine those factors currently favored by investors and selects candidates exhibiting those factors.

Examples of factors include book value, momentum, quality, market cap etc.

 

Flagship Top Stocks

Approximate number of holdings: 30

Selection process: Momentum model – strives to hold the best performing stocks from each sector based on their momentum and relative strength.

Approximate S&P500 Sector Allocations

Technology: 26%

Financials: 15%

Health Care: 14%

Consumer Discretionary: 13%

Industrials: 10%

Consumer Staples: 7%

Energy: 6%

Materials: 3%

Utilities: 3%

Real Estate: 3%

Telecommunications: 2%

The Flagship models are unique as they are the only Sowell series which employ individual stock picking strategies. The Flagship series offers clients access to three actively-managed equity-only portfolios.

The three models in our Global Macro series are designed using an actively managed hybrid strategic asset allocation, meaning that we designate specific equity to fixed income allocations for each of the portfolios (like a normal strategic model), but we allow them to be overweight and underweight asset classes and global exposures (such as emerging market equity or developed Europe debt) based on our market research. The target allocations between stocks and bonds are as follows:

Global Macro Conservative (40% stocks/ 60% bonds)

Global Macro Core (60/40)

Global Macro Growth (80/20)

The Global Macro portfolios are unique due to the hybrid strategic investment style that is used. This style allows us to maximize opportunities within global market trends, with the added flexibility of opportunistic investments into satellite allocations (such as gold ETFs) as unique opportunities arise. Our Global Macro series offers clients portfolio diversification that extends beyond just domestic asset classes.

The three models in our Liquid Alternative series are strategic in nature, offering broad access to the liquid alternative universe.

A breakdown of the target equity to fixed income allocations is as follows:

Liquid Alt Conservative

Liquid Alt Diversified

Liquid Alt Growth

The Liquid Alt series is unique due to its exposure to non-traditional strategies. While we don’t normally recommend these as stand-alone models, we’ve found that adding some exposure to them in combination with other models improves a client’s overall risk-adjusted return.

Sowell US High Yield

This is Sowell’s tactical strategy within the high yield space, aimed at investors seeking to generate higher income within a risk-managed approach. The strategy operates in two modes – either fully invested within actively-managed high yield mutual funds or allocated toward 100% cash if trends within the high yield sector turn negative.

The ten models in our MPD series, which stands for Modern Portfolio Diversification, are based on the philosophy that an improved risk-adjusted return can be achieved by diversifying a portfolio across multiple investing strategies. To achieve this, our seven main MPD models feature combinations of different SMS models – AMP, Global Macro, Flagship, TAP, and Liquid Alternative. The other three, known as our MPD Stratactical series, follow essentially the same model-of-models philosophy, but exclude exposure to our Flagship models in order to lower turnover and minimum investment requirements.

A breakdown of the target equity to fixed income allocations of our MPD models is as follows:

MPD Total Return (20% stocks/ 80% bonds)

MPD Income and Growth (30/70)

MPD Conservative (40/60)

MPD Balanced (65/35)

MPD Growth (85/15)

MPD Global Growth (85/15)

MPD Aggressive Growth (100/0)

MPD Stratactical Conservative (30/70)

MPD Stratactical Balanced (65/35)

MPD Stratactical Growth (85/15)

The MPD series is unique by employing a “model of models” methodology. We understand that not every strategy works consistently throughout the investment cycle. By combining multiple Sowell models, we can capitalize on whichever strategy is working in the market at a given time and hedge against the ones that aren’t currently in favor. Our MPD models give higher net worth investors access to a philosophically diverse portfolio that fits their risk profile, as well as access to Sowell’s dedicated portfolio design team.

The five models in our TAP series are designed using tactical asset allocation, meaning that we invest a range of equity / fixed income / cash allocations in order to try to “time” the market (as opposed to a strategic allocation where we have fixed target allocations). Within our models, we have 3 allocation options: 100% equity, 60% equity/40% fixed income, and 100% cash. We utilize two models (one studies multiple price-based technical signals – updated daily, while the other studies the fundamental and economic landscape – updated weekly) to switch between these different allocations.

The TAP models and their allocations function in the following ways:

TAP 1X:

When both signals are positive = 100% long stock market (exposure via S&P 500 and Nasdaq index ETFs)

When both signals are negative = 100% cash

When signals disagree = 60% stocks/40% bonds

TAP 2X: Leveraged to be up to 200% equity invested when appropriate

When both signals are positive = 100% long stock market (up to 2x equity exposure when all signals are extremely bullish)

When both signals are negative = 100% cash

When signals disagree = 60% stocks/40% bonds

TAP Complete: Exposure to a broader selection of indices

When both signals are positive = 100% long stock market (exposure via S&P, Nasdaq, Dow Jones and Russell 2000 index ETFs).

When both signals are negative = 100% cash

When signals disagree = 60% stocks/40% bonds

TAP Conservative: Always 50% bond allocation, 50% tactical strategy (breakdown for tactical as follows)

When both signals are positive = 50% bond, 50% long stock market

When both signals are negative = 100% cash

When signals disagree = 30% stocks/70% bonds

TAP Global Allocation: Equity and fixed income exposures are firmly in global category

When both signals are positive = 100% long global equity (weighting per equity sleeve of Global Macro model)

When both signals are negative = 100% cash

When signals disagree = 60% stocks (ACWI)/40% Global Govt Bonds

The TAP models are unique because of the tactical allocation strategy that is employed in their design. The dynamic nature of this strategy allows us to minimize losses in a bear market and capitalize on up-trends in a bull market.

This is Sowell’s tactical strategy within the high yield space, aimed at investors seeking to generate higher income within a risk-managed approach. The strategy operates in two modes – either fully invested within actively-managed high yield mutual funds or allocated toward 100% cash if trends within the high yield sector turn negative.