Every investment in a client’s portfolio impacts the risk and associated return for the overall portfolio. Accordingly, Pekin Singer Strauss allocates assets into various investments based on the client’s particular needs - risk tolerance, income requirements, tax bracket, portfolio size, liquidity issues, investment preferences, time horizon, etc. The primary mechanisms that Pekin Singer Strauss uses as investment vehicles are equities, fixed income securities, and, to a lesser degree, alternative investments.
A suitable segment of a client's portfolio is allocated to high quality stocks for long-term capital appreciation. When we choose a company's stock for a client’s portfolio, we consider:
- Most critically, the purchase price which establishes the potential returns we will generate from the investment, as well as the downside risk.
- The ways in which we can potentially lose money if we commit the capital of our clients.
- Whether the company is a good business that we would want to own in its entirety.
- Prospects for future revenue, earnings, and cash flow growth.
- Ability to grow the business with internally-generated cash.
- Management’s capability and its stake in increasing shareholder value.
- Strength of the balance sheet, with a preference for liquidity and low debt levels.
- Probable risks relative to the probable rewards.
Our approach to fixed income investing balances the desire to generate a reliable stream of income for our clients (and confidence that the principal amount invested will be repaid) against the risks associated with committing capital for a fixed rate of return. The implementation of this approach is done through the purchase of thoroughly vetted investment grade securities. Our view of the macro-economic environment, together with the potential interest rate risk and credit risk, is critical to our strategic approach to fixed income investing. Our objective with fixed income is to invest only when our conviction is high that both interest earned and our principal capital committed will be paid on a timely basis.
After determining a client’s liquidity and income needs, short- and long-term goals and personal preferences, we allocate an appropriate portion of a portfolio to municipal, corporate, federal government, government agencies, international sovereign debt, and /or mortgage-backed bonds screened for safety, stability, and current income. We choose bonds based on:
- The quality of the issuer.
- A key focus on the risks involved, should interest rates change.
- Industry and issuer diversification to minimize risk.
- Bond duration influenced by our interest rate view.
Certain clients have expressed their desire for us to allocate a portion of their capital into private market investments. Through our relationships, from time to time, we see alternative investment opportunities, such as real estate and in private equity. These investments are sometimes managed by individuals and firms with expertise complementary to our own. The investment decision making process for such investments is comparable to the rigorous process executed on equities and fixed income securities for our clients.