Strategies

The Short Duration Portfolio invests in a diversified set of low duration, fixed income ETFs that have exposure to various economic sectors, issuers, term structures, and regions. The portfolio has a flexible mandate that allows the 6 Meridian Investment Team and underlying portfolio managers to deliver on the strategies objective. The objective is to preserve capital and generate current income. The strategy will generally operate with a duration of 0 to 3 years, making it a solution that is one step beyond cash.

The Fixed Income Portfolio invests in a diversified and broad mix of fixed income ETFs and Mutual Funds that have exposure to various economic sectors, issuers, term structures, regions, and currencies. The portfolio has a flexible mandate that allows the 6 Meridian Investment Team and underlying portfolio managers to deliver on the strategies objective. The objective is to produce current income with a secondary goal of capital appreciation. The strategy will operate with a duration profile beyond that of the Short Duration Portfolio and will be diversified globally across developed and emerging market countries. The longer duration of this portfolio makes it subject to more interest rate risk, meaning it can see larger moves on a day-to-day basis relative to other fixed income products such as cash or the Short Duration Portfolio.

The stock selection process is that same as Mega Cap, but the distinguishing aspect comes from the usage of selling call options against a broad-based and liquid index (such as the S&P 500) to dampen the volatility of the portfolio. We have found that selling options in this manner has improved portfolio outcomes when compared to selling call options against each of the individual stocks on their own. The objective is to provide exposure to U.S. Large-Cap Equities but place an emphasis on reducing the volatility of the outcome. Selling call options may not perform as well as unhedged equity strategies in an upward trending stock market but may provide downside protection in a broader stock market decline.

The Asset Allocation Portfolios come in two forms, either an Income or Growth orientation. The difference between them is the allocation across Global Equities and Fixed Income. In Asset Allocation Income, the target profile is a split of 30% Equity / 70% Income while the Asset Allocation Growth has a target profile of 70% Equity / 30% Income. Both portfolios are constructed to provide a solution that is pre-packaged to deliver broad diversification across the primary asset classes of debt and equity. The objective for both solutions is to provide diversified, total return. In essence, these solutions are a set mix that incorporates the objectives of the Fixed Income and Global Core Equity model portfolios outlined previously. An alternative solution to these Asset Allocation Models would be to combine the Global Core Equity and Fixed Income Models at weightings that are representative of one’s end goal that may deviate from the offered 70/30 or 30/70 mix here.

The investment universe covers all market capitalizations in the U.S. equity landscape by looking into each of the Large Cap, Mid Cap, and Small Cap indices. Upon the initial screening to remove stocks scoring poorly on fundamental and momentum measures, the remaining stocks in each respective market cap are ranked according to their beta against their universe index. Research has shown that stocks with low betas have generated returns higher than those predicted by academic theory – specifically Capital Asset Pricing Model (CAPM) – while high beta stocks delivered returns below CAPM’s expected levels. The objective is to provide exposure to broad U.S. Equities and deliver capital appreciation by selecting securities with relatively lower exposure to broad equity market risk (beta). The portfolio will own approximately 80 stocks for each market cap bucket, thus creating a portfolio of approximately 240 securities. All stocks are equally weighted.

The investment universe is focused on the largest 10% of U.S. stocks by market capitalization. Once the initial process of removing stocks scoring poorly on fundamentals and momentum measures is complete, any remaining stocks are then ranked on a stand-alone basis across multiple equity factors: Beta, Momentum, Yield, Value, and Quality. The stocks that rank highest in each factor are combined to create the portfolio. The weighting of each stock is dependent on the number of factors it ranks highly; therefore, stocks that meet the criteria of multiple factors have larger weights. The objective is to provide exposure to U.S. Large-Cap Equities and deliver capital appreciation with an emphasis on risk-adjusted returns. The portfolio will be concentrated with less than 60-stocks and thus present a high active share relative to the broader U.S. stock market.

The Global Core Equity Portfolio invests in a globally diversified mix of ETFs that are selected to provide cost-effective and full market exposure across developed and emerging markets. The portfolio expects to achieve a beta of 1 to the global equity market, and rebalancing of the portfolio is systematic. The objective is to provide capital appreciation that closely aligns with the total return of the global equity market over a full market cycle. The strategy will introduce thoughtful, valuation-aware tilts towards segments believed to offer attractive forward return potential. The primary driver of the risk profile comes from equity market risk, but the modest tilts may introduce style and regional deviations as well.

The International Equity Portfolio invests in ETFs and Mutual Funds that have a target market of developed economies outside of the U.S. Key regions meeting this criterion would be the likes of Japan, U.K. Canada, France, and others. The 6 Meridian Investment Team constructs this portfolio by combining strategies that will provide exposure to the market yet introduce thoughtful tilts towards areas believed to deliver strong risk-adjusted returns over a full market cycle. The objective is to provide capital appreciation and act as a complement to other equity investments. Recent history shows that non-U.S. developed market equities comprise 25-30% of the global equity market. This portfolio provides a solution that allows investors to capture this exposure and diversify across the many countries and firms that operate outside of the U.S.

The Emerging Markets Blend Portfolio invests in ETFs and Mutual Funds that have a target market of emerging economies. Key regions meeting this criterion would be the likes of China, India, Taiwan, and Brazil. The 6 Meridian Investment Team constructs this portfolio by using a blend of both equity and debt offerings covering the emerging market landscape, with a majority of the portfolio weighted towards equities. The equity component is constructed by using core positions that will introduce thoughtful tilts towards areas believed to deliver strong risk-adjusted returns, paired with additional high active share or tactical strategies as well. The debt component is allocated between fixed income securities denominated in both U.S. Dollars and local currencies. The objective is to provide capital appreciation and act as a complement to other equity investments. Recent history shows that emerging market equities comprise 10-15% of the global equity market. This portfolio provides a solution that allows investors to capture this exposure and diversify across the many countries and firms that operate in the emerging economies of the world.

The investment universe is focused on U.S. Small-Cap stocks only. The initial quantitative screen to avoid stocks scoring poorly on fundamental and momentum measures is done first. Thereafter, the remaining securities are ranked on a stand-alone basis across two factors: Beta and Value. The stocks that rank highest in each factor are combined to create the portfolio, and stocks that rank highly in both factors will have larger weights. The objective is to provide exposure to U.S. Small-Cap Equities and deliver capital appreciation with an emphasis on risk-adjusted returns. The portfolio will be diversified across approximately 80-90 stocks and will present a high active share relative to the broader U.S. Small-Cap market.