Investment Insights

Jeff Benjamin

Customized approach works well for boutique firm

Jun 25, 2007 @ 12:01 am

By Jeff Benjamin

As the separately managed account industry swells to about $1 trillion, gaining momentum through the popularity of mass-marketed model portfolios, at least one boutique asset management firm is clinging to a more customized approach.

Abner Herrman & Brock LLC, a $750 million Jersey City, N.J.-based money manager, is leveraging in-house strategies such as its large-cap-core balanced portfolio to help financial advisers prevent their clients from running out of money in retirement.

Of the $275 million that AHB manages in the strategy, about half is managed on behalf of advisers for their clients. The rest of the money is invested for institutional-class investors, including pensions and foundations.

The strategy, though not necessarily known for hitting home runs, does offer some low-volatility, tax-sensitive returns in a style that never would be mistaken for that of a closet index fund.

“We will tilt the portfolio toward growth when the value is expanding and toward value when the economy is contracting,” said Jason Graybill, who is part of the firm’s management committee.

The strategy begins with a top-down macroeconomic perspective that leads to sector allocation.

“We will go underweight the index or overweight or even void a sector, depending on the market conditions,” Mr. Graybill said.

The equity portion of the portfolio is designed to capture 90% of the upside of the Standard & Poor’s 500 stock index but only between 50% and 75% of the downside.

The composite portfolio is allocated typically with equities that represent between 40% and 60% of the total asset allocation, but advisers have full flexibility to adjust that balance as they see fit for each of their underlying clients.

The equity portion, which has a 35% average annual turnover rate, currently is tilted toward the industrial sector, with an 18% weighting, compared with an 11% weighting in the S&P 500.

One industrial-sector favorite is Zurich, Switzerland-based ABB Ltd. (ABB) a global provider of power and automation technologies to the utility industry.

The portfolio will invest globally as long as a non-U.S. company has a listed American depositary receipt.

“In the industrial sector, we’re indifferent to where a company is domiciled,” said Kevin Strauss, another member of the management committee. “The key is, we’re looking for companies exposed to the explosive growth of infrastructure building.”

ABB shares, which closed Friday at $22.39 a share, were up 25.8% year-to-date, compared with a 5.9% gain by the S&P 500.

Another example of the kind of companies the management committee seeks in the industrial sector is United Technologies Corp. (UTX), a Hartford, Conn.-based conglomerate that is a leading provider of elevators and air-conditioning systems in the global-infrastructure expansion.

United Technologies’ stock closed Friday at $71.38 a share, up 13.1% year-to-date.

The utility sector is another area where the management committee is bullish at a 7% weighting, which is double that of the benchmark.

The strategy is to underweight radically the index in technology with a 6.5% weighting, compared with 15.2% for the index.

“In technology, there’s no huge wave of growth right now, which makes it a very company-specific area,” Mr. Strauss said.

One of the tech names in the portfolio is Corning (N.Y.) Inc. (GLW). Mr. Strauss said he likes the company as a glass-making play on the expanding digital-television market, in addition to a growing fiber optics business.

Corning stock closed Friday at $25.49 a share, up 36.2% year-to-date.

The fixed-income side of the portfolio isn’t to be overlooked as just another lump of Treasury bonds to counterbalance the equity positions. The customization on the fixed-income side can range from corporate-debt to government agency to municipal bonds, depending on a particular investor’s situation, according to Mr. Graybill.

“If a client is in a higher tax bracket in a taxable account, we’ll use muni bonds,” he said. “If someone is in a lower tax bracket or it’s in a retirement account, we’ll use corporate bonds, agency or Treasuries.”

Last year, the AHB balanced portfolio gained 9.2%, compared with 15.8% for the S&P 500.

In 2005, the strategy was up 2.6%, while the index rose 4.9%.

The real payoff has come during the down years, such as 2002, when the index was down 22.2%, and the AHB portfolio lost just 3.9%. In 2000, when the S&P 500 lost 9.2%, the balanced portfolio finished up 7.2%.

Questions, observations, stock tips?

E-mail Jeff Benjamin at jbenjamin


What do you think?

View comments

Recommended for you

Upcoming Event

Jul 10


Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video


What's the top issue on advisers minds?

Laura Pierson from Carson Group discusses how the old topic of 'Human Capital' is hot again because of millennials.

Latest news & opinion

New ways to pay for college

Experts respond to real-life scenarios of people struggling to afford higher education.

How technology is reshaping the advice business

Artificial intelligence, Amazon and robo-advisers are some of the topics on the minds of tech experts.

Best- and worst-performing sector funds and ETFs this year

A rising tide may lift all ships, but a bull market doesn't lift all stock sectors. Here are the best- and worst-performing sectors this year, with the top and bottom fund in each sector.

Betterment slapped with $400,000 fine from Finra

Robo-adviser cited for violating customer protection rule and not maintaining its books and records correctly.

Supreme Court ruling on SEC judges unlikely to upend advice industry

But it could give rise to new hearings for some advisers who are already in litigation with the agency such as Dawn Bennett.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print