Investment Consulting Business Plan

VISTA INVESTORS believes the goal of U.S. equity portfolios should be to outperform the broad market, as measured by the Wilshire 5000 or Russell 3000. Exposure to economic sectors will roughly approximate those of the benchmark. Our view is that any deviation from the benchmark represents a bet, or in our case, a calculated risk that will determine over or under performance. Portfolios will also maintain market cap exposure to large cap (>$10 billion), mid cap ($2 billion to $10 billion), and small cap (<$2 billion) securities. Like weightings to economic sectors, the weight of the portfolio allocated to large, medium, or small stocks represents a bet relative to the benchmark. On average, our portfolios will hold roughly 2/3 of their value in large cap stocks, and 1/3 of their value in mid and small cap stocks. This distribution among capitalization ranges represents a modest bet that mid and small cap stocks will outperform, consistent with studies showing small company stocks outperform larger companies in the long run.

We believe our process will be successful in the future for the following reasons:

1. It provides the opportunity to outperform the market without taking undue risks.
2. It does not concentrate heavily in a narrow segment of the market (e.g. small cap growth stocks, energy stocks, telecom stocks), thus portfolios are more likely to maintain a stable asset base when certain areas rotate out of favor and prompt redemptions.
3. It simplifies investor’s portfolios by reducing the number of managers or funds they need in their overall asset allocation.

A recent research piece by Ennis Knupp, a leading institutional investment consultant, provides support for what they call “whole stock” portfolios. They believe manager specialization has gone too far resulting in inefficient structures that provide index-like returns at excessive fees.

The decision-making process is one of consensus. The portfolio management team meets weekly to discuss the portfolio and any changes to it. In rare cases, if we fail to reach a consensus decision, the CIO will act as the arbiter, usually prompting for additional research, but if necessary, providing a final decision. Our investment model is one in which portfolio managers are also analysts. This concept of portfolio managers/analysts making decisions on a team was recognized and adopted for its proven success in a few select firms that have been extremely successful from both an investment and business perspective. Portfolio manager/analyst responsibilities include idea generation, due diligence, and completion of research projects directed by the CIO. While each portfolio manager/analyst has experience in various areas, they are generalists in the sense that they are not assigned specific sector responsibilities. We find this allows individuals to remain stimulated by their jobs. At least one research assignment per month will be that of an in-depth review of an economic sector. We find this provides sufficient coverage per economic sector and enhances the team’s overall coverage of the broad market.