Investment Philosophy

Hefter Leshem Margolis Capital Management Group

Of Wells Fargo Advisors

Private Investment Management, PIM

Investment Philosophy Statement

We believe the most important aspect of investing is asset allocation.  The asset classes where you invest may ultimately determine your return, diversification, risk-reward profile, and psychological well-being.

The portfolio construction process is dynamic and starts with a detailed discussion with clients regarding their risk tolerance, income requirement, return goals and any specific future cash disbursements.  We then make recommendations, execute the strategy and review it often to make sure it is still in line with the client’s expectations. 

Generally we advise diversification amongst the following asset classes:

  • Global Equities

  • Global Bonds

  • Inflation Protected Bonds

  • Municipal Bonds

  • Exchange Traded Funds

  • Commodities (Real Assets)

  • Lower volatility, higher yielding equities

  • Master Limited Partnerships

  • Liquid Alternative Investments (Mutual Funds, ETF’s, Stocks)

  • Preferred Stocks

    Our portfolios usually consist of different countries and may hold many different asset classes besides stocks. We help manage risk by creating 3 classifications. 

 

I.  INCOME-ORIENTED CAPITAL GROWTH

Preferreds

We believe the dislocations that have occurred in the past few years have provided attractive prices on preferred stocks and master limited partnerships. Preferred stocks are securities that are higher cash flow priority in the capital structure than common equities. They pay out relatively high dividends in comparison to high grade corporate bonds.  Currently many preferred stocks trade at a discount to their maturity price and therefore the yields are higher than their coupon rate.  Preferred stocks are subject to capital appreciation or depreciation in addition to the dividends.

Master Limited Partnerships

Master Limited Partnerships (MLPs) are companies that own real assets such as natural gas pipelines and storage facilities. They are structured so that they pay out the majority of their profits in tax-deferred dividends.  Due to the historical record of profit and dividend increases, MLPs have been an attractive vehicle for inflation protection.

Floating rate Bonds

These are bonds of U.S. corporations that pay interest that adjusts with U.S. interest rates

Inflation Protected Bonds

These are usually U.S. and foreign government bonds that pay interest with principal that adjusts with inflation

Corporate and High Yield Bonds.

We invest in both investment grade and non-investment grade bonds. However, we generally avoid non-investment grade bonds in economic environments with deteriorating fundaments.

Municipal Bonds

These are tax-free bonds of U.S. municipalities.  In general these bonds can be general obligations bonds backed by ad valorem taxes or revenue bonds backed by receipts from a specific entity.

 

II.  GLOBAL ASSET ALLOCATION

We have access to some of the world's best portfolio managers. These are managers that have complete flexibility in the securities they own.  They can be fully invested, or during period of economic duress, they can overweight cash. Their portfolios usually consist of equities and bonds from different countries as well as investments in preferred stocks, master limited partnerships, and real assets such as gold and oil.

The best portfolio managers are not limited by investment style such as value and growth or company size such as large, small or medium capitalization securities. Some portfolio managers can hedge their risk by shorting market indices in periods they deem high risk.

 

III. Individualized Allocation

1. Our Primary Focus is wealth preservation and risk containment.

We use a top down approach, beginning with an evaluation of global economic conditions.  Our forecasts for interest rates, currencies, energy prices, earnings growth, and historic multiples help determine regions of the world in which we want to invest.  We then determine a global asset allocation for each client. 

2.  If we see a deteriorating economic environment, we may hold a percentage in cash or cash alternatives.  Our analysis then leads us to determine which asset classes, industries, and sectors make the most investment sense given our forecasts.  The sectors we favor may be over weighted.  The sectors we believe will fare poorly are either underweighted, or may be removed from our portfolio.

Once we select the areas we believe will benefit the most from our forecast, we find specialists in those sectors.  For instance, if we like Asian, Latin America, and small capitalization equities, we go out and seek to identify some of the top managers in Asia, Latin America in small cap stocks.

Because we have the resources and an open platform at Wells Fargo Advisors, our clients have unlimited access to some of the best managers around the globe.

Our portfolios are quantitatively and fundamentally designed to help preserve principal and provide capital appreciation.  We endeavor to achieve this goal by crafting asset allocations amongst various asset classes, regions, sectors and currencies.

 

IV. Communication
 

Wells Fargo Advisors provides you with written progress evaluations on a quarterly basis. These evaluations will include a comparison of your portfolio to an index as well as a review of your asset allocation and historical performance. In addition, you will receive a monthly statement and a 1099 statement at the end of the year. You will always have direct access to me should you have any questions or concerns. By maintaining open communication, I believe I may be able to help you avoid any pitfalls created by downward market cycles.

 

DISCLOSURES:

Past performance is no guarantee of future results.

Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns.  Dividends are not guaranteed and are subject to change or elimination .Diversification does not guarantee profit or protect against loss in declining markets.

The PIM program is not designed for excessively traded or inactive accounts, and may not be suitable for all investors. Please carefully review the Wells Fargo Advisors advisory disclosure document for a full description of our services. The minimum account size for this program is $50,000.

As each Private Investment Management (PIM) program account is individually managed, construction and ongoing management of portfolios may vary from those discussed in this Philosophy Statement.  Investments and investment strategies are provided for informational purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy.  We would need to review your individual situation before recommending appropriate strategies to you.

Stocks offer long-term growth potential, but may fluctuate more and provide less current income than other investments. An investment in the stock market should be made with an understanding of the risks associated with common stocks, including market fluctuations.

There are special risks associated with investing in preferred securities. Preferred securities generally offer no voting rights with respect to the issuer. Preferred securities are generally subordinated to bonds or other debt instruments in an issuer’s capital structure, subjecting them to a greater risk of non-payment than more senior securities. In addition, the issue may be callable which may negatively impact the return of the security. Preferred dividends are not guaranteed and are subject to deferral or elimination.

Master Limited Partnerships (MLPs) are not appropriate for all investors, and are particularly not usually appropriate for retirement-related accounts.  Also, an MLP shareholder, i.e. a limited partner unit holder, receives a K-1 instead of a 1099.  Investors should contact their tax accountant for further tax implications before investing in MLPs.  Wells Fargo Advisors is not a legal or tax advisor.

Income from municipal securities is generally free from federal taxes and state taxes for residents of the issuing state. While the interest income is tax-free, capital gains, if any, will be subject to taxes. Income for some investors may be subject to the federal Alternative Minimum Tax (AMT).

Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon redemption or maturity. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the value of the investment.

Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility. Investing in emerging markets accentuates these risks.

Text Box: INVESTMENT AND INSURANCE PRODUCTS: NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUEInvestments in commodities, futures, and managed futures are speculative, involve substantial risk, and are not suitable for all investors.

Investments in currencies involve certain risks, including credit risk, interest rate fluctuations, fluctuations in currency exchange rates, derivative investment risk and the effect of political and economic conditions.



Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC, Member SIPC, a registered broker-dealer and non-bank affiliate of Wells Fargo & Company, 1 North Jefferson, St. Louis, MO 63103

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