Every client portfolio you build requires a solid core—the equities that form its foundation, upon which you add tilts to meet market conditions and individual risk tolerance.
Many advisors rely on mutual funds or Separately Managed Accounts (SMAs) to create the core. These can be effective, but have drawbacks—including management fees, as well as tax inefficiencies of mutual funds. That means clients pay more in fees, their money doesn’t work as hard, and you keep less of your fees.
Our Earnings Certain strategies offer options for your core strategy: These strategies have historically offered solid returns in all markets, while reducing investor exposure to risk. Any of the three strategies in our series (Core, Admiral, and Dividend) can be used as a versatile base and be easily adapted to market conditions.
For example, in an up market or "risk on" scenario you would reduce weight of the core to capture greater alpha—while in a down market or "risk off" scenario you would add weight to your Earnings Certain core.
When we look at potential companies to include in the Earnings Certain Strategy Series, we seek firms that have demonstrated steady, highly predictable earnings growth over sustained periods by being well-insulated from boom-bust cycles.
The original Earnings Certain Core Strategy represents the top earnings-stable companies in the U.S. equity market (currently 62 firms). When combined into an equal dollar-weighted portfolio, and rebalanced annually, the earnings stream is highly resistant to the impact of a downturn or recession. The strategy's forward 12-month earnings stream can be forecasted with 90% reliability and has passed through recessionary periods virtually unscathed.
The Admiral Strategy distills the Earnings Certain Core Strategy to a more manageable 30-company portfolio that still provides similar characteristics and “recession-resistant” performance as Earnings Certain Core. The Admiral Strategy actually provides even more defense on the downside compared to the Earnings Certain Core Strategy. In fact, one way to use the Admiral Strategy for added risk mitigation is to add outsized weight to the Admiral stocks within the overall Earnings Certain Core allocation.
Our Dividend Strategy is a 25-stock portfolio built on the recession-resistant foundation of our Earnings Certain Core Strategy but also provides income generation potential by harnessing the proven returns of high-quality, dividend producing stocks. The Dividend Strategy consistently outperforms the S&P 500 Dividend Aristocrats ETF (NOBL) in down markets by continually seeking to minimize exposure to problematic sectors among the Dividend Aristocrat stocks.
Get the free guide to see performance numbers for Earnings Certain strategies, how we build the portfolios, and some of the tilt strategies we recommend to generate alpha in up markets.
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