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Because no two clients are alike, we recommend investments custom-tailored to the needs of each investor. Not until we have gathered significant information from our clients pertaining to their long-term objectives and constraints do we discuss suitable alternatives for them.
That said, in our efforts to determine the suitability of any prospective alternative investment for our clients, we generally seek and assess alternative asset classes and investment strategies with the following characteristics:
Low Volatility: With a focus on conservative, alternative investments, it is important to us that the investments we recommend have very low volatility. Our clients are generally happy to forego the promise of huge gains in exchange for the promise of reasonable gains with low volatility.
Attractive Risk-adjusted Returns: The concept of “high” returns is relative to the risk assumed by investors to achieve those returns. At Westcourt, we seek out conservative investments with attractive returns that are achievable without the assumption of undue risk.
High Degree of Diversification: Diversification within investors’ portfolios takes two forms. Both are designed to ensure that under-performance within an asset class has a lesser effect on the invested assets as a whole. The first is diversification among asset classes, meaning that investors split their investments between stocks, bonds, cash and alternative investments. The second is diversification within asset classes.
Low Correlation to Public Equity Markets: Since most clients already have significant exposure to the public markets, Westcourt provides diversification through the recommendation of alternative investments uncorrelated to those markets. In other words, we endorse investments that we believe will perform predictably regardless of stock market volatility.
Expected Consistent Distributions: With the exception of bonds, few investments guarantee distributions in specific amounts or on a specific schedule. However, many alternative investments are designed to return predictable periodic distributions that, while not guaranteed, are expected and paid out. At Westcourt we source and due diligence many investment products designed to provide steady, predictable returns to our clients.
Potential for Capital Appreciation: In addition to distributions, some conservative alternative investments provide investors with capital appreciation (the increase in value of their investments). Capital appreciation is welcome both because it increases the investors’ net worth and because it defers any taxes payable on the gains until the investments are sold in the future.
Reasonable Liquidity: Most publicly-traded securities, such as stocks and bonds, are fully liquid, meaning that investors are able to buy and sell them at will. Full liquidity has the advantage of being able to “cash out” on a moment’s notice, and the disadvantage of having the “value” of a security determined by whatever the last purchaser was willing to pay for it. As we have seen in recent times, during volatile market cycles, the minute-by-minute re-pricing of securities is not necessarily beneficial to anyone. That being said, illiquid securities are generally difficult investments for all but the most trained and sophisticated investors. There is little or no way to cash out if an investor requires his money back at a time other than the one designed by the security’s issuer. At Westcourt, our clients are long-term investors who require flexibility, but not “real-time” liquidity. We seek investments for our clients with periodic liquidity, to provide some comfort that their investments are not tied up indefinitely.
Tax Efficiency: It is often said that investors, when evaluating the purchase or sale of an asset from a tax perspective, should not allow the “tail to wag the dog”. In other words, investors should not purchase a security simply because it is tax efficient. After all, if the investment doesn’t provide a distribution or increase in value, the fact that it was tax-efficient is totally irrelevant. Still, tax efficiency is a very important consideration to make when comparing offerings that are otherwise very similar in risks and returns. At Westcourt, we seek investments that fit squarely within our investment profile that may also provide tax-efficient distributions or growth.