We have been “Target Return” Managers from Our Founding Day.

We looked at the “Style” approach to managing money and we decided “Style” management has had too much volatility. People we started talking with early on liked the idea of trying to figure out how much return was necessary to achieve an investment goal. If you could figure out what return you needed to reach the client objective you could then reduce the risk and in turn reduce the volatility in a portfolio. Clients could sleep at nights with peace of mind through bear and bull markets alike.

“Style” managers measure their performance against an index, like the S&P 500. The evidence is that over 65% of managers constantly underperform their benchmark. Sometimes when a manager’s performance is below the index, they begin to reach for return by expanding their risk. This expansion of risk is called “Style Drift” and it can cause some significant problems to investors. “Style Drift” is great when the risk expansion pays off, but when it turns against you the destruction can be devastating.

When money is managed on a “Target Return” basis, the manager is looking to get as close as possible to the “Target Return” with assets that have the least amount of credit risk and price volatility. As many investors learned recently, seeking a high yield turned into no yield and in some cases no money.

We are more concerned about protecting the capital in both up and down markets than trying to beat an index. We believe that one of the changes that will become apparent after this bear market is over is that investor expatiations for return will have to be lowered. We believe that Mark Twain got it right we he said:

“Americans should be more concerned about the

 return of their money than the return on their money.”