Minimizing Risk
July 11, 2018
Investor Series – The Yield Curve and Why it matters
August 3, 2018

Investor Series – Process

Analysis of securities is of high importance when providing financial and investment advice. It generally falls into two categories that can be classified as qualitative and quantitative. When performed at a high level, the analysis effectively takes the shape of a blend of art and science. A perfect metaphor is thinking of a top-notch sports car, like a Ferrari or Lamborghini. The art component is the interior accents, race inspired bucket seats, and overall shape and color of the body. The science is the engine displacement, stopping power of the brakes, and chassis design. The important thing however is that those concepts, art and science meld to provide an experience in singularity. Although we generally deal with intangibles, the investment world operates in a similar scope when pertaining to the evaluation of securities, especially mutual funds and exchange traded funds (ETFs). Some examples of the quantitative aspects would be expense ratio (total percentage of fund assets used for administrative, management, advertising) and alpha (measure of active return on an investment), while a qualitative aspect would include the managers of a portfolio. Each security we evaluate is based on these concepts. Diving to a deeper level allows us to better understand how we should expect a security to behave in different market conditions. This long-tested method of evaluation has a fantastically simple, yet robust method of evaluation that is called the 5 P’s. These 5 P’s stand for Process, Performance, People, Parent, and Price. In this investor series we will walk through how we utilize this method to continually evaluate securities and update the underlying to make sure they are performing as expected in your portfolio. More importantly, we will also discuss why each of the 5 P’s is important.
This first section happens to be one of the most important. The Process portion of the analysis attempts to answer the questions surrounding the goals of what the fund has set out to achieve according to its prospectus but more importantly how it plans to do so. This is where the strategies of the portfolio management team get scrutinized and picked apart so that we may see if they are viable and provide value to investors. A question we may ask ourselves is if the fund is actively trying to beat its benchmark or is it passively allocating money to replicate an index? An example to help explain can be found in one of our alternative funds we use, the Goldman Sachs Absolute Return Tracker Fund (GJRTX). If we zoom out to the 10,000 feet level, this fund at its core follows an index. It attempts to replicate the hedge fund universe as represented by the HFRX Index. We recently sat down with one of their portfolio managers and she described their process as broken down into four separate sleeves that each have their own specific strategy based on what is happening in the index which contains about 3,600 separate hedging strategies. These four main strategies consist of equity long-short, global macro, event driven, and relative value. The exposures provided to each of these four are determined through running regression analysis on those original 3,600 strategies and thus allocated using a goal of diversification through liquid securities of which there is about 300 different instruments across nine different asset classes (equities, fixed income, credit, currency, volatility, commodities, MLPs, real estate, and convertibles). They do this through holding common stock, ETFs, swaps, futures, and forwards. This fund does have a fairly complex strategy, which is why we constantly monitor how the managers are implementing it. We dive into this level of detail for all the underlying funds in our models. While it’s impossible to completely eliminate risk, it’s important to know the process of how funds are trying to generate value and returns to reduce the risk of unintended consequences down the road if you- know-what hits the fan.
Griffin Sheehy, Financial Analst

Leave a Reply

Your email address will not be published. Required fields are marked *

Mark Shone CFPMark Shone, CFP

Phone: 925.472.0874
Mobile: 925-209-3771
Fax: 925-472-0884

Mark Shone, CFP®, founder of Shone Asset Management LLC, is responsible for all aspects of Financial Planning and Asset Management at Shone Asset Management and works directly with clients of the firm. He has been in the business since 1988 and founded the firm in 2005 as a fee only financial planning and asset management business. Prior to founding Shone Asset Management, he was a Managing Director and Neuberger Berman and Lehman Brothers. Mark has a degree in Finance from California State University, Sacramento, competed his certificate in taxation at UCLA and completed a course of study at the Wharton School.

Mark enjoys helping families and clients map out the financial life they want to create and helping them by making smart decisions over time. He has extensive experience speaking on and guiding clients through topics such as retirement planning, preparing for the cost of education, investment allocation strategies, estate planning topics, insurance and behavioral finance. He is committed to helping clients maximize their full wealth potential.

In his spare time Mark enjoys golfing, is an avid sports fan and is a drummer for the band Stagefrite which plays cover songs from the 80’s to today.


Gail Markham

Director of Client Service

Gail has worked in the Financial Services industry since 1983; as a Bank Manager, and as an Investment Advisor as well as Compliance Manager for major Wall Street firms.  She is a graduate of the University of the Pacific.

Gail is a long time resident of the East Bay.  She lives in Walnut Creek with Will, her husband of 26 years.  She has two children, Jack & Kelly who are college students.

Gail enjoys golf, hiking, traveling, gardening, wine and college basketball.


Griffin Daniel Sheehy

I came on board with Shone Asset Management in 2016 and as Financial Associate, I provide support in the areas of investment planning, financial planning, and portfolio management. I am a graduate of Cal Poly San Luis Obispo’s Orfalea College of Business where I earned a Bachelor of Science of Quantitative Economics concentrated in Financial Management. Post-graduation, I went straight to work for Waddell & Reed, which is a large advisory firm that specializes in financial and investment planning. I started there in an assistant-type role until earning my Series 7 and Series 66 licenses and at that time promptly transitioned into an Advisor Associate role. Having those licenses allowed me to not only engage in full support on the client servicing side, but in the financial and investment planning process as well. This is where I learned just how critical developing, implementing, and constantly reviewing a solid all around plan is to the success of one’s financial goals. While in college, I interned at Northwestern Mutual in Sacramento where I earned my Insurance License and was educated in the value of managing the risk of unforeseen events in life. I also interned at a small commodities market research firm based in Petaluma, California called Streetwise Reports.

I am married and in my free time I enjoy outdoor activities with my beautiful wife like taking beach trips and hiking. I also enjoy playing sports in local leagues for baseball and basketball.