It is unfortunately difficult in the very noisy financial services sector to tell the difference from a broker working for a large bank, a financial services representative at your local bank, an insurance agent pitching financial advice via annuities or life insurance, online brokerage firms offering advice on a green chair, robo-advisors with model ETF platforms and accounting firms selling mutual funds. Some firms however are fee-only Registered Investment Advisors which provide wealth management services as a fiduciary for a fee without commissions thereby limiting many conflicts of interest.

Altrius is of course one such firm acting as a fiduciary to our clients; however, in addition to providing wealth management services our firm also acts as a money manager providing separately managed accounts and sub-advising a mutual fund for financial advisors around the country. Most financial advisors, brokers, agents and representatives outsource money management to firms such as ours thereby adding layers of cost. In contrast, Altrius does not outsource money management functions to other firms instead purchasing individual stocks and bonds for our clients through our proprietary income focused process.

Fisher Investments remains one of our noble competitors, and also one of the few, which also acts as an investment and wealth management firm. I find myself agreeing with many of Ken Fisher’s eponymous commercials in which he addresses different topics stating “if you’ve spent years building your wealth on mutual funds, it may be time to graduate”; “I give them the F word: fiduciary” and “I would die and go to hell before I would sell an annuity”. So, where is Altrius similar to Fisher and how are we different?

First, I’ll address some of the similarities between Altrius and Fisher Investments:

• As I previously mentioned, both firms act as a fiduciary charging fees to our clients rather than commissions and are legally bound to put the interests of our clients above our own.

• Fisher remains one of our few wealth management competitors who not only manages individual stocks, but also claims compliance with the Global Investment Performance Standards (GIPS ®) which allows us to publish the performance track record of our strategies.

• Both Altrius and Fisher report our performance returns to databases such as Morningstar with both of our firms garnering 4-star overall ratings for our U.S. stock strategies.

This is where our similarities end however as our investment processes are significantly different. The following is comprehensive discussion of our differences and where we believe Altrius adds value:

• Altrius manages over $350 million in assets whereas Fisher manages over $70 billion according to its latest SEC filing. Though both firms manage individual stocks, Fisher is simply too large to manage a portfolio of smaller capitalizations bonds (such as Avis Budget, Rent-A-Center or Rite Aid) and instead utilizes ETFs and very large capitalization issues (i.e. Coca Cola or Pfizer) according to Morningstar. As such, Altrius is able to provide a customized portfolio of 60 – 100 individual bonds producing above average income to our private clients. In addition, Altrius’ fixed income portfolio provides significantly higher yield while also maintaining a much shorter duration and maturity to potentially better protect against rising interest rates.

• Altrius’ focus remains on providing above average dividends with our Disciplined Alpha Dividend strategy more than doubling Fisher’s US Total Return at 3.71% versus just 1.73% respectively according to Morningstar.

• Altrius has always had a value driven approach wherein Fisher clearly leans toward a growth/momentum strategy. As of December 31, 2017, Fisher’s largest holding was Amazon at 5.2% and Google (Alphabet) its fifth largest at 3.9% – both of which are very expensive at 235 and 60 times trailing earnings (94 and 22 times forward earnings). Though I enjoy both products, buying a company at 100 times earnings is crazy and though I have no intention of ever selling my company, should someone offer me 100 times earnings due to our potential growth opportunities I would be crazy not to accept!

• Altrius has maintained superior risk adjusted performance over the past decade. As growth has well outpaced value over many years (we are due for a rotation), Fisher’s performance has been slightly better than ours over the past decade at 9.13% vs. 9.34% respectively. However, our risk adjusted performance is significantly greater as Altrius’ Alpha, Sharpe Ratio and Sortino Ratio are all higher than Fisher’s over the trailing ten years.

Growth/momentum strategies have been driven greatly by FANG (Facebook, Amazon, Netflix and Google) stocks and are currently highly appreciated and expensive. In contrast, value stocks have not been driven to excessive valuations. The remarkable trend of outperformance of growth/momentum against value has been something I’ve discussed in detail during the last few newsletters and also represented with charts in economic presentations. In 2016’s first quarter newsletter, I wrote:

Value (Low Multiple) Versus Expensive (High-Multiple) Stocks — In another unusually long market cycle, this has been the longest run of underperformance for value stocks since 1930. At nearly 10 years, it has outlasted the six-and-a-half years of the internet/tech stock bubble. The flipside has been that on the other end of the style spectrum, expensive growth and momentum stocks have had unusually strong returns.

The chart on the next page also shows that over the long term a value investment approach has meaningfully outperformed a strategy of buying expensive (high-multiple) stocks. However, cycles persist. Value investing has had several periods of significant underperformance. The inability of most investors to stick with a value approach during such cyclical reversals is likely what enables the “value premium” to persist over the long term. Moreover, the short-term performance-chasing tendencies of most investors pushes the pendulum still further.

It’s possible that growth’s outperformance continue over the next decade; however, I believe that the greatest benefit of our approach versus Fisher’s is that you don’t have to “hope” for growth. With Fisher’s strategy, you must hope he can outperform enabling him to sell stocks at appreciated levels in order to provide you with retirement income. In contrast, should our portfolio decline in value (which is inevitable during recessions in both portfolio management styles), the basket of stocks we own will provide 3 ½% to 4% in dividends which enables you to “get paid to wait” for the price appreciation we expect over longer periods of time. We believe our three pronged approach of dividends, value and global growth generation is a more prudent manner to manage assets than a growth/momentum strategy. Though extremely competitive, I honestly don’t care if we outperform Fisher over the next decade as I believe strongly that our approach provides a greater certainty of retirement success than Fisher’s as we have accomplished over the past tumultuous two decades.

 

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