Newport Capital Advisers

What are the major factors that Newport Capital Advisers considers in investment manager selection?

We look for consistency of decision process, conceptual and practical validation of the process, compelling risk management, and organizational commitment when selecting and retaining managers. We recognize and resist the familiar temptation to simply extrapolate recent trends when we address manager selection or retention. Just as price alone provides insufficient information for most investors in stocks, past performance is only one factor in manager selection. Sophisticated quantitative analysis is best used to manage risk, not to naïvely compare past performance. Firms with greater interest in attracting new assets than in investment performance (an all too common problem but one to which no firm would ever admit) are of no interest to us.

Selecting managers is probably more difficult than selecting stocks and there is no substitute for meetings with decision-makers at investment management firms. We conduct on-site visits with managers when it is practical and necessary. We communicate with an extensive network of investment professionals that we have developed here and abroad to help us surface such research opportunities in addition to screening our manager databases.

We will never recommend a manager to a client without meeting with its principals and developing confidence in its process. Our manager selection approach is based on relative valuation, the willingness to exploit less efficiently priced asset sectors, and the conviction to engage less well-recognized investment managers. Just as one would not base a stock purchase or sale decision solely upon its historical price performance, one should not select investment managers solely, or even primarily, upon performance history. Frequently, recent underperformance may be evidence of an attractively priced portfolio. Recent outperformance may likewise indicate that the manager’s style has had a good run, not that the manager in question is skillful.