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Portfolio Construction and Manager Selection

The LPL Financial Research team believes that fundamental, valuation, and technical factors form the basis of a sound investment decision-making process. Relying heavily on these three factors, the team uses a diligent process for designing the asset allocation and security selection framework for the portfolios.

Our asset allocation framework spans the full range of client investment objectives and themes. To populate the underlying asset classes in the models, a wide array of investment choices gives you the opportunity to customize your client portfolios. Our breadth of coverage includes mutual funds, separately managed accounts, variable annuity subaccounts, fixed income securities, alternative investment strategies*, exchange-traded products and sophisticated investment solutions

Asset Allocation: Building One Portfolio at a Time

Today's investment climate offers unlimited opportunities and challenges. We focus on understanding when the market environment is rewarding or penalizing a particular sector,  investment, region or asset class which helps to set the framework of the asset allocation to either a defensive or opportunistic stance.

We believe that portfolio construction begins with a sound, tested asset allocation process. We construct specific portfolios for each of the different models using an overarching asset allocation process as a guide. All the model portfolios must be well-diversified among broad investment types and offer an optimal mix to meet varying investment objectives.

Our asset allocation process is a multi-disciplined, collaborative effort. Each week potential investment opportunities are analyzed with the goal of augmenting longer-term perspectives with shorter-term asset allocation opportunities.

Security Selection: Populating the Asset Classes

Once an asset allocation has been established, the next step is to populate each portfolio with securities. We believe that diligent fundamental research and a well-defined analytical process, rigorously adhered to, is the key to identifying, recommending, and monitoring investment opportunities that offer the potential for superior long-term, risk-adjusted returns.

Portfolio Construction: Putting It All Together
Once the asset allocation is created and due diligence is completed on the individual securities, we move to portfolio construction. Our goal is to ensure the combination of securities leads to a strong performing portfolio. This is the key step in our process. Simply selecting a variety of securities from different asset classes and weighting them in a particular manner does not ensure a strong performing portfolio. Analysis must be conducted on the portfolio as a whole to make sure it has the potential to meet established goals.

From asset allocation to securities selection and combining underlying investments, each portfolio is specifically designed to address the objectives of your clients

Ongoing Monitoring of Portfolios and Underlying Investments
Once a portfolio has been constructed and implemented, it is continuously tested and monitored to ensure that it remains true to its established objectives. Our model portfolios are monitored closely on a daily basis against their benchmarks, peers and our own internal metrics. This process ensures that the portfolios are positioned correctly for both the short and long term, and take a number of factors into consideration including, our strategic point of view and tactical asset allocation; how implementation decisions have performed in the past and why they performed the way they did. Each of these considerations is critical to our decision-making process.

Sell Discipline
Our sell discipline framework helps take much of the emotion out of the investing process and helps us monitor the risk-return characteristics of our trades on a real-time basis. The sophisticated and in-depth sell discipline is an important part of the risk control and portfolio monitoring process. The sell discipline enables analysts to determine two critical components:

  • How long do we wait until we sell an investment that is lagging?
  • Conversely, how long do we stay with a successful investment idea before taking profits?

We monitor factors including macro variables, valuations, fundamentals, and technicals, among others to ensure that the thesis is still valid or if a sell is warranted. The result is a disciplined and analytical approach that your clients can understand and embrace as they pursue the investment strategies you have developed for them.

* Alternative Investment Strategies include hedge fund strategies, private equity, managed futures vehicles, structured products, equipment leasing partnerships, real estate investment trusts (REITs), 1031 real estate exchanges, and oil and gas partnerships.