The Informed Investor: What you need to know about investment styles
Every investor wants to buy low and sell high. To achieve that deceptively simple goal, investment advisers 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, under performing for perhaps years at a time. Many investors 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 employ a multi-asset, multi manager approach that diversifies extensively across all market segments and investment styles, as well as across individual securities within each segment. Client portfolio diversification is achieved through use of as many as 65 different management groups, more than 200 different funds and exposure to approximately 8,000 securities over ten-year periods. KIM clients therefore are diversified into large-cap, mid-cap and small-cap stocks; use of growth and value styles; and domestic and international equities.
Similarly with fixed-income vehicles, KIM diversifies across corporate and government bonds, Treasuries, and domestic and international securities.
This level of diversification is distinctive in the investment industry. It lowers portfolio risk by avoiding overexposure to out-of-favor styles or securities.
But curtailing risk is only half the story. The other half is how we add value:
- High-value financial instruments: KIM takes advantage of market inefficiencies to select securities that offer uncommon value and that are overlooked by the market.
- 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 does not beat the temporary leading performers, because diversification by definition entails exposure to out-of-favor segments. Similarly, in down markets, KIM performance avoids the steep declines commonly seen among less diversified investors and firms. 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.