Investment Philosophy

 

Structure

North Woods Asset Management is a fee-only Registered Investment Advisor (RIA), which means that we have a fiduciary obligation to act in the best interests of our clients. We believe that strong long-term investment performance requires intelligent, objective portfolio management; this in turn requires an organizational structure that aligns the best interests of the firm with the best interests of our clients.

Beyond the legal fiduciary obligation, this alignment of interests is best accomplished by sensible and transparent compensation. A sound advisor should never want to hide how they are compensated. As a fee-only RIA with a fiduciary duty to our clients:

  • we are legally obligated to act in our client’s best interests
  • we do not accept commissions, loads, or soft dollars; we do not get paid any more or any less depending on the investments we select for our clients
  • our compensation is a percentage of the assets we manage, meaning our profit-motive is tied to long-term client relationships

Strategy

Active vs. Passive. Strategic vs. Tactical. Factor Investing vs. Data Mining.

Over the past several decades, data shows that it is very difficult for active fund managers to outperform passive indices by enough to justify their higher expense ratios. The unpredictability of geopolitics and global economics also makes it exceptionally hard to predict the correct timing for a particular asset class to outperform.

This doesn’t mean that active fund managers don’t beat passive indices, just that it is a tough exercise to predict which ones will and won’t. This also doesn’t mean it is impossible to predict larger scale asset class movements, but the downside of guessing wrong often outweighs the upside of guessing right.

On the other hand, an overly strict “buy and hold” strategy can fail to adapt to market globalization, and can damper the benefits of diversification. As the percentage of publicly traded companies continues to decrease, passive management strategies may lose some of the market efficiency upon which they are based. As indexing gains in popularity and in market share, we believe it may create trading and potentially price inefficiencies.

In financial markets, truisms of the present based on data from the past often become the culprits of the future.

We believe that there is a middle ground between the extremes of passively managed buy & hold indexing strategies and actively managed tactical market-timing strategies.

We want to diversify, own the whole market, and own it as cheaply as possible. We want our allocations to adapt to the changing world economy. We never want to forget about valuations or that long term earnings drive long term returns. Without sacrificing proper diversification, we want exposure to sectors where long-term out-performance potential exists based on fundamental economic theory, specifically demographic trends. Lastly, we want to rebalance often, by breaking asset classes into their component parts, to harness market volatility over the long term.

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