BPI Core and Satellite Approach
OIS defines "Best Practice Investing" or "BPI" as investing in companies meeting rigorous qualitative and quantitative metrics that are placed in an investment portfolio built on global fiduciary standards of excellence.
Investors place a critical mass of their total investments, typically 65-100%, in a diversified, liquid, institutional quality, managed portfolio that serves as the "core" investment. In some cases, this is an employer-sponsored retirement plan such as a 401K, 403b, or TSP account.
The remaining funds, typically 1-35% are placed in "satellite" investments that complement the core investment and reflect specific investment convictions, opportunistic ideas, themes, or particular investor needs.
Specific mixes, allocations, and investment selections depend on each investor’s objectives, family dynamics, upcoming life events, financial disposition, risk tolerance, and other factors.
1. Understand the Client’s Vision
- Collaborate to affirm financial aspirations and priorities.
- Identify short-term and long-term life goals.
- Establish a clear risk-return profile rooted in family dynamics, feelings on the market, and risk profile.
- Ensure alignment between investment objectives, family or business needs, and known life events expected to occur in the near future.
2. Analyze the Economic Landscape
- Study macroeconomic indicators (e.g., GDP, inflation, interest rates).
- Assess geopolitical risks and their potential impact.
- Identify patterns, emerging trends, market dislocations, and sectors that appear undervalued or have higher momentum.
- Maintain investment discipline and minimize emotional impact on investment decisions.
3. Develop a Foundational Strategy that Can Be Personalized if Desired
- Establish strategic asset allocation targets for each strategy.
- Tactically tilt asset allocation targets for strategies needing personalization to reflect unique investor needs and market indicators.
- Incorporate active and passive investment strategies based on sector, industry, and manager performance, and costs.
- Plan for contingencies and market volatility and stay invested unless specific exit points have been predetermined.
- Customizing examples: tax loss harvesting, personalized direct index investing, security or industry exclusion, diversifying or protecting concentrated equity positions.
4. Select High-Quality, Promising Investments Meeting Screening Criteria
- Start with publically traded investments available on major U.S. stock exchanges (e.g, NYSE, CBOE).
- Apply quantatative and qualatative screens.
- Utilize assessments and reporting from multiple analysts.
- Identify high-conviction ideas, momentum plays, thematic opportunities, and ways to capitalize on any market dislocations.
5. Build and Implement the Portfolio
- Build investment strategies using a core and satellite approach designed to diversify portfolios, minimize risk, capitalize on high-conviction ideas, and compress costs.
- Use advanced tools to optimize for risk-adjusted returns.
- Assess model portfolios against various market scenarios to identify points of heightened vulnerability and strength under various sets of market conditions.
- Apply relevant global fiduciary standards of excellence.
6. Monitor, Adapt and Communicate
- Continuously monitor performance and market conditions to ensure alignment with investment objectives, quantitative and qualitative metrics, and portfolio dynamics.
- Proactively adjust the portfolio to seize opportunities or mitigate risks while staying focused on fiduciary standards and bedrock investing principles.
- Communicate regularly with clients to ensure their portfolio reflects their values and personal situation.