Every investor wants to buy low and sell high. To achieve that deceptively simple goal, money managers have developed more than a dozen equity management styles, such as value, growth, small-cap and sector rotation. Over time, each style enjoys its day in the sun, when the market rewards that particular approach. Each style also falls out of market favor, underperforming for perhaps years at time.
What many investors don’t realize is that when they hire a money manager, they are betting on that manager’s style. Institutions typically don’t have this problem; they’ll decide they want 10 percent of their portfolio in growth stocks, say, and pick a growth manager to handle that portion. Individual investors, by contrast, often don’t realize that their selection of a manager represents de facto commitment to a particular style.
The KIM approach is different. We don’t bet on a particular style but rather diversify extensively across all market segments as well as across individual securities within each segment. This extensive diversification avoids the risk of overexposure to out-of-favor styles or securities.
Similarly with fixed-income vehicles, KIM diversifies across corporate bonds, Treasuries, and domestic and international securities.
But curtailing risk is only half the story. The other half is how we add value:
- High-value financial instruments: KIM exploits market inefficiencies to select financial instruments that offer uncommon value. For example, the company is a large investor in closed-end funds, which trade at discounts to their net asset value—like buying a dollar for 75 cents.
- Controlled transaction costs: KIM analysts monitor markets continuously to capture opportunities for price-efficient trades.
The end result for KIM clients is solid, benchmark-beating performance. Our approach emphasizes steady, incremental advantages that over time add up to substantial added value. In up markets, KIM typically doesn’t beat the hot hand, because diversification by definition entails exposure to out-of-favor segments. In down markets, KIM doesn’t slide with the herd. We’re the tortoise not the hare, winning the race through steady application of discipline. This is investing, not speculating. It’s the ideal approach for conservative,
long-term thinkers.
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Equity Management Styles
Value managers seek undervalued securities with low risk characteristics.
Growth managers emphasize stocks that hold promise for capital appreciation.
Small-cap managers favor companies with relatively low market capitalization.
Hedge/Arbitrage uses derivatives to reduce risk, or takes advantage of price disparities in different markets.
Sector rotators shift among major market sectors based on expected performance over the coming market cycle.
Income managers emphasize securities with relatively high dividend yields.
Venture/special situation managers focus on newer emerging companies, IPOs and private placements.
Market timers shift between equity and cash equivalents based on anticipated market movement.
Contrarians select out-of-favor stocks.
Quantitative managers rely on extensive quantitative research and portfolio modeling.
International managers emphasize companies domiciled outside the United States.
Passive managers invest in baskets of securities designed to emulate the performance of some index.
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