Investment consulting is at the heart of our firm. Multnomah Group utilizes a rigorous, multi-step process to select investment managers for our clients. This process is grounded in the financial markets research of the past 50-plus years and uses proprietary research, and reporting analytics to identify suitable managers in each asset class.
The fundamental philosophy upon which this process is built is Modern Portfolio Theory (MPT) and market efficiency/equilibrium. We know that risk and return are highly correlated. To achieve greater investment returns, investors need to be willing to accept greater investment risk (typically defined as short-term volatility). We also know that different asset classes (i.e. bonds, large cap stocks, real estate, etc.), have different risk profiles and therefore provide different risk premiums to investors willing to accept their inherent risk. Expected investment returns are based on an investor’s allocation to the various asset classes available in the marketplace. The primary determinant of a fund’s investment performance is going to be its asset class exposure.
Since the average investment manager cannot add value on top of the asset class returns and because asset class returns are so readily available through index and passive investment products, we start with our default assumption that we may index any given asset class. From here we look at the universe of actively managed investment products to determine if we can identify one of a minority of active managers that are likely to add value net of their fees.
Our investment selection process is as follows: