At Santa Fe Advisors, we construct investment portfolios that are diversified across asset classes and managers and which reflect each client’s unique circumstances, investment objectives, and risk tolerance. The Santa Fe Advisors portfolio construction process involves two steps: global asset allocation, and investment vehicle selection.
Global Asset Allocation
Santa Fe Advisors takes an institutional approach to managing client investment portfolios, where the firm develops one view of the global investment landscape, which is then reflected in all of our client portfolios. We are not a collection of brokers, where clients may have different investment experiences based upon which advisor they get: all of our clients benefit from the Santa Fe Advisors worldview, which is formed and constantly updated through a rigorous process of daily analysis and debate. We analyze every major global region and asset class, assessing political and economic risks and trends as we form a view on the absolute and relative attractiveness of every sector. Once we have determined which investment opportunities are most and least favorable, we construct portfolios that reflect those views, in line with the specific risk tolerances and objectives of our clients. We then actively manage those portfolios as our views evolves in light of changing market risks and opportunities.
Manager Selection and Due Diligence
Our portfolios are primarily composed of mutual funds and exchange-traded funds for efficiency and liquidity purposes, but for certain clients we will also invest in non-public vehicles and separately managed accounts.
Investment Manager Identification
We constantly look for outstanding investment talent across all asset classes. Our manager research team maintains an extensive database of information on managers across all styles and strategies. Our investment team has over 50 years of experience in working with and evaluating investment managers and we utilize a proprietary and highly sophisticated analytical process.
Because we are focused on managing overall portfolio risk, our investment selection process tends to focus on those managers who have produced superior risk-adjusted (rather than absolute) returns.
Quantitative Screening
Our process begins with a quantitative analysis that focuses on the specific performance of each manager being evaluated over a long period of time (at least five years). Our models evaluate each manager on specific measures such as risk-adjusted returns, excess returns, volatility, and drawdown, with an emphasis on identifying those managers that have provided the greatest amount of return for a given quantum of risk.
Our quantitative process is designed to understand not only the level, but the nature, of each manager’s returns and to understand the periods of time when each manager’s style tends to work best, and less well.
Qualitative Screening
In most cases, we meet face to face with each manager so that we can observe their work environment, meet other team members, and understand the resources and constraints that may affect their performance going forward. This helps us to make qualitative assessments about the likelihood of each manager continuing to produce superior risk-adjusted returns.
Our qualitative due diligence focuses on questions such as:
- What is the nature of the firm’s investment process? Does it contain well-defined, repeatable elements? Has it been applied consistently?
- Under what circumstances does the manager tend to outperform or underperform?
- What risk management protocols have been established?
- Are there any conflicts of interest between the manager and its clients?
- How much personal capital does each manager have invested in his/her strategy? Where does the manager have other investments?
- Does the organization have appropriate business and administrative infrastructure?
- Is the level of support staff (including investment analysts), experience, turnover, and hiring practices consistent with the needs of the organization and the manager?
Ongoing Due Diligence
While the initial evaluation of a manager is important, over time managers and individuals change. Our ongoing monitoring is just as important as our initial review in order to ensure that the quantitative and qualitative attributes that we initially found attractive are still present and have not changed in any material way.
We closely monitor monthly investment performance and style consistency. In addition, we hold periodic meetings with professional staff of the manager, either in our offices or in theirs, to review performance, discuss the firm’s investment outlook, and meet new members of the investment team. These meetings also provide valuable information that helps to shape our overall asset allocation strategies.
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