We believe that consistent performance stems from following a disciplined investment process. Overseen by the firm’s Investment Policy Committee, our distinct and specialized investment teams incorporate industry knowledge, independent research, internal analysis, and global market insight into our research-driven investment strategies.
Comprised of the firm’s senior executive leadership, HighMark’s Investment Policy Committee oversees investment processes. This group also monitors the firm’s fiduciary responsibilities and compliance policies. The Committee creates the overarching framework for our investment strategies and develops informed macroeconomic and market outlooks that shape and guide our strategic and tactical portfolio decisions. The senior executive leadership group oversees and guides the three critical areas of the investment process: centralized research, portfolio construction, and risk management.
We begin by combining fundamental research and quantitative processes that contribute to idea generation, portfolio construction, and risk management.
Our equity and fixed income research analysts conduct rigorous bottom-up fundamental and quantitative research within a top-down macroeconomic framework. Sector specialists research companies globally and across the capitalization spectrum, enhancing our ability to identify evolving trends, articulate future value creation, and stimulate investment ideas. We perform extensive company analysis searching for potential sources of exceptional earnings growth and capital appreciation to make sector and security recommendations based on extensive top-down conclusions and fundamental analysis.
The Committee determines the firm’s overall strategic and tactical allocations, examining a breadth of opportunities. We combine rigorous fundamental macroeconomic insights with our proprietary multi-factor tactical return forecasting models to guide our asset allocation decisions. The Committee taps the expertise of our equity, fixed income, and cash management senior investment directors.
This process combines all of our research and investment strategies to meet our clients’ objectives, optimize returns and control risk.
Our proprietary asset allocation process recognizes the importance of two distinct, but related processes: strategic and tactical asset allocation. We believe it is important to get the strategic, or policy, allocation correct, as the exposure to stocks versus bonds or investment style can overwhelm any significance of decisions on active manager selection. Once the policy allocation is determined, tactical asset allocation seeks to add value in excess of the specified benchmark by shifting exposures toward more attractive asset and sub-asset classes and away from unattractive or over-valued asset classes.
Our equity investment team selects securities by leveraging proprietary fundamental and quantitative research to manage equity strategies across a broad spectrum of investment styles, regions, and capitalization ranges. Position size is based on upside reward, downside risk, industry dynamics, our confidence in the company, and quantitative guidance.
The fixed income investment team develops taxable and tax-exempt fixed income strategies, selecting securities using yield curve positioning and intensive market and credit research. We reposition portfolios, as necessary, to take advantage of opportunities arising from changes in interest rates, the yield curve, and sector spreads.
The team selects securities based on extensive spread analysis and volatility management. We have experience in managing institutional cash and excess working capital. Three principal themes reside at the heart of the investment process—safety, liquidity, and yield.
Portfolio risk is constantly being monitored and managed using various proprietary risk management and portfolio optimization tools that impose sector, security, style, and active risk exposure limits.
Each investment strategy has strict parameters relating to the deviation relative to their benchmark. We normally strive for participation across all major economic sectors and hold approximately 50+ companies and issues depending on investment strategy.
Portfolios are monitored for maximum sector and individual security weight differences versus their benchmark. Portfolio risk is constantly reviewed to ensure the portfolio fits within the strategy mandate and our clients’ investment guidelines. We monitor holdings utilizing a proprietary stock scoring model and employ strict sell disciplines including exiting when downside risk begins to outweigh expected upside reward. We will also trim positions to keep the overall portfolio at an appropriate size based upon the risk/reward profile.
Performance attribution is a risk management and analysis tool that dissects portfolio returns into the major determinants of value-added, including security selection, factor tilts and sector or industry exposure. Attribution analysis helps explain deviations in portfolio returns relative to a specific benchmark, which is vital to monitoring and managing portfolio risk.