As Seen in
Forbes
Cornerstone Investment Services has been chosen by Goldline Research
as one of the
Ten Most Dependable Wealth Managers of the NorthEast

Money Management

No Style is Our Style
We are not like many advisory firms that have portfolios to fit every occasion. We don’t have an “income” or “value” or “growth” portfolio. Our portfolios are tailored to the needs of the individual investor but all are based on the Cornerstone Model Portfolio.

Many money managers have decided to be “value” or “small cap” or some other specific style. We haven’t. Since markets shift from value to growth and bull to bear, we believe it is in the client’s best interest to be fully flexible. We don’t try to force a style on the market; rather, we let the market tell us what is working and go with that.

We may use more than one strategy at the same time in a portfolio. We may have a long-term position in an investment to take advantage of a long-term cycle, but at the same time have a contrary position to take advantage of a short-term countertrend.

A Better View From Up Here
A prevailing theme in many advisory firms is the “bottom-up” approach. This is where they study companies and put together a “portfolio of good companies.” They believe this can override the forces that drive markets up and down. Research shows this isn’t true.

Most research shows that the direction of a stock is primarily dependant on the direction of the market, secondarily it is dependant on the direction of its industry and lastly on its own fundamentals.

Knowing this, we take a top-down approach. We look to the long-term cycles of the market and economy. We determine where in the cycle we are, based on history and current statistical trends. We determine an economic overview and market valuation. We then determine which sectors will likely perform best given the overview. We then look to the industry and last we pick stocks within the industries best poised to do well.

Cycle Dictates Asset Allocation
To many money managers, asset allocation means mirroring the market. Not to Cornerstone. We base our asset allocation on what is dictated by the current part of the cycle. It makes little sense to us to own bonds when interest rates are rising. We don’t see the logic of investing in stocks that are above their historical norms for overvaluation.

Research Drives Money Management
Our research is in charge of the Model Portfolio. We don’t just analyze the current environment, but have gained an understanding of what characterized previous cycles and what to expect from current and future cycles. This analysis keeps us from jumping on “false signals” that could end up just being counter trends within a major trend.

For instance, previous bull markets in stocks have started when the market traded at P/E ratios in the single digits. They started after debt levels peaked and started to come down, in real terms. Bull markets usually start after a recovery of pricing power has returned to businesses.

None of these conditions were present when the market started to rally recently. Being able to tell the difference between a new bull market and a rally within a bear market can mean the difference between success or failure.

A Man’s Gotta Know His Limitations…
We know what we do best – put together low risk portfolios and trade short term. We know our research. What we don’t do is try to figure out if Bolivian bonds are a better buy than Czech debt. We don’t research Italian utilities compared to Australian. We let specialists do that.

For most specialty situations, (Foreign bonds, international equities…) we use certain mutual funds that have shown their research meshes with or compliments ours. In this way we are able to get top quality management in areas where we know we need to be, but don’t have the hands-on expertise. We can’t do everything!

To Fee or Not to Fee
Since many of our client’s portfolios will have a portion of assets in mutual funds, we have created a Hybrid Account for billing purposes.

Traditionally, money managers charge an annual fee of a certain percentage of the client’s assets. (Money manager's all have their own, different fee structure and rates.) This fee is usually calculated monthly and usually deducted from the account quarterly. On a $350,000 portfolio, the fee could be 1.75% annually. This means about $1500 will be deducted from the account each quarter.

Many of the funds we use have various classes of shares. The main difference in these share classes is the internal fee. Traditional money management usually uses the Institutional or no-load version of the fund. (No-load funds normally don't pay a broker or representative a commission or an ongoing trail fee. Retail funds do pay commissions and ongoing trail fees. The fund prospectus details all of the particulars of each fund and their share classes and how brokers are compensated.)

We realized that the difference in the internal fees between the Institutional or no-load funds and the retail version of the same fund was sometimes lower than our management fee. So we created the Hybrid Account that takes advantage of this difference for the client.

Suppose XYZ mutual fund has a no-load version with a .75 internal fee. And they have a retail fund that has a 1.60% internal fee. The retail fund’s internal fee is .85% higher than the no-load. Let’s say the portfolio is $350,000. Our fee would be 1.75%. We will use the retail fund with the higher fee and NOT CHARGE our management fee. This saves the investor almost 1.00% (0.90%) on that investment in fees, (this may or may not translate into a performance difference.)

Even though internal fees are not out of pocket expenses for the investor, we still consider them when calculating the client’s expenses. A client with a $350,000 portfolio might have as much as 50% in mutual funds that we don’t charge our managmenet fee on. This reduces their management fee from $1500/qtr (Traditional method) to around $750/qtr.

We are constantly reviewing the internal fees of the funds we deal with and updating our systems to have the most accurate estimates of expenses.

Everything an investor needs and more…
With Cornerstone’s method of managing money, investors are exposed to areas they may not be familiar enough with to invest on their own and usually can’t find with most traditional money managers. Our approach is pro-active instead of reactive and we are constantly looking for what is next.

Our fee structure favors the investor to the point that many want to know what they are missing! Clients get the attention of a small boutique money management firm and the client services of a nationally recognized, industry leader – National Financial Services.

Cornerstone Model Portfolio

Logical Approach to Portfolio Construction PDF

Top Down Approach PDF

Long Term Cycles and Asset Allocation PDF

Cornerstone Investment Strategy PDF

Cornerstone Investment Principles PDF