Naomi - click here and write a clever title
Transcription of interview with John OíConnor on February 17, 2014.
Douglas Goldstein, CFPÆ, Financial Planner & Investment Advisor
John OíConnor is the president and chief investment officer of a money management company
called 3D Asset Management.
Douglas Goldstein, financial planner & investment advisor, interviewed OíConnor on Arutz Sheva
Radio.
Douglas Goldstein: What is 3D Asset Management all about?
John OíConnor: We use it metaphorically.
As opposed to viewing a picture or a photograph of something that looks the same from every
angle, we view investing as kind of multi-dimensional.
We have our own view of it and we dive into the weeds and get very technical and do a
lot of asset class analysis and then eventually security analysis to build portfolios, but
we realized since we almost work exclusively through advisors, theyíve got their own view
of it, they are approaching client goals and challenges in a unique way in every situation
so weíve got to take that into consideration when weíre working through our investment
process and then ultimately, investors, the end-clients look at what it is theyíre provided
from a different angle than either the advisor or we do.
So we have to take that into account.
We try and take a very technical complicated process, make it simpler to explain and ultimately
easy and service friendly to deliver.
Douglas Goldstein: From an end-user standpoint, what would his relationship be with a company
like yours?
John OíConnor: Often times, weíll have a direct contractual relationship which means
that weíre a fiduciary, weíve got an obligation to put the clientsí interests first but we
always do that through someone like a CFP or a financial advisor that knows that client,
that married couple, that retiree, that corporate executive knows their situation, their goals,
their aspirations, their risk tolerance, knows that inside and out that an investment manager
can never know because we donít sit down with the client on a regular basis.
We based our management on the information you provide us really.
Douglas Goldstein: What makes the company like yours different from client buying a
mutual fund and I know that youíre very involved in exchange-traded funds (ETFs), why wouldnít
the client just go ahead and buy those?
John OíConnor: Our separately managed accounts, weíve got a few ways to get them to people
but most of our money is managed with well-known custodians, Charles Schwab is an example.
So an individual account sits at Schwab and then if thereís any differences between say
two of your clients, you let us know that and those two accounts might be managed slightly
differently or might have if somebody got municipal bonds they want to hold outside
of our managed account, we can also put that in a Schwab account and report on it.
As opposed to just buying shares of a mutual fund, those shares are going to be identical
regardless of the clientís age or risk tolerance or position in life or their goals or anything
like that.
Douglas Goldstein: The term separately managed account, could you dive in a little more and
just explain what that really means?
John OíConnor: Itís one of those things that are functionally named.
Itís a brokerage account, held it up like I say a well-known custodian like Charles
Schwab and itís in the name of the client and the investor will get every month a statement
from Charles Schwab either physical or online if they prefer.
Itís a separate account in their name but weíve got the authority through their contract
that they have signed with us to go in and do trades and cause a check to be sent out
if that is something that the client is looking for or money to be moved from one place to
another, always with the clientís authorization.
It is a separate account that is managed by 3D.
Douglas Goldstein: The way that I often described this model of having money managers handle
a portfolio is I will tell the client ìYou are like the president of your own company.
You hire someone like me as the CFO, the chief financial officer to help you and advise you
in dealing with the money and whether they are stocks or bonds or real estate or financial
planning, I serve in that capacity and then itís my job as the CFO to find managers to
handle the day to day operations of the buying and selling.î Do you think that is a good
way to describe what is going on?
John OíConnor: I think thatís a great analogy.
We describe ourselves to advisors and end-users as somebodyís outsourced investment analysis
and investment services department.
You may use a technology firm to outsource the maintenance of your networks.
A lot of advisors use us to outsource the research and development involved with the
investment process and then even to the extent that the trading, the reporting and the client
actual account administration falls on our shoulders as well.
Itís a great way to run a business.
I know we outsource several things as well.
Our technology is one and a few others.
Itís an efficient way to run a firm.
Douglas Goldstein: Letís say that someone comes along, a financial advisor and he says
ìIíve got a retired client.
Weíve done a financial plan and we want to have half of his portfolio in a global equity
portfolio and half in bonds and we like to assign to you the global equities.î When
you get that assignment, how do you know what to buy?
John OíConnor: We use exchange-traded funds or ETFs as our primary means of accessing
the various markets around the world.
We take the information that youíve provided us on your clientís goals and risk tolerance
and objectives.
What we try to do is we build a globally diversified portfolio that is going to shoot for a targeted
rate of return with a managed amount of risks or in plain English, weíre trying to access
opportunities around the world.
Thatís easy to do the way we do it with 15 or so ETFs in the portfolio.
We can invest across 45 countries in around 10,000 underlying stocks, large stocks, tiny
stocks, and with various financial fundamental tilts associated with [inaudible 0:08:37]
index based, fairly low cost and very efficient.
Douglas Goldstein: Would you consider yourself active managers or passive managers?
John OíConnor: We certainly use passive products.
The exchange-traded funds we use are all index based in some way, shape or form.
We are what we refer to us strategic managers.
So weíve got a strategic asset allocation but itís not quite set it and forget it.
Based on changes in various economic events, market events or financial events around the
world, we will adjust the portfolio.
Weíll always be fully invested.
So in the example you gave is if youíre hiring us to manage the equity or stock portion of
someoneís portfolio, weíll always be in the market but we might be more in the US
markets than we traditionally are if we think the US as was the case, let the world out
of the global recession or we might be in more small caps than a normal model would
be if we think thereís more opportunity in small stocks.
Recently on the bond side of our portfolios, we shortened up the average maturity in the
bonds because we feel the longer bonds are going to see with interest rate rises, bond
prices fall and we want to prevent the portfolios from dipping as a result of that.
Douglas Goldstein: Thereís certainly a big debate in the industry about whether tinkering
with the portfolio adds a value or subtracts value or itís just kind of value neutral.
How do you see the different arguments on that?
John OíConnor: We based all of our investment process on academic studies over long periods
of time.
We donít actively manage, we do rebalance periodically.
Everybody I think would agree that ideally you want to buy low and sell high and by rebalancing
a portfolio back to its target periodically, youíll be doing that so youíll sell your
overpriced asset classes and youíll be buying in to asset classes that have maybe depressed
in value.
Douglas Goldstein: How often do you do something like that?
John OíConnor: We balance annually or if an asset class or particular part of the portfolio
has gone outside of its determined tolerance range.
We donít try and predict market but we do see trends developed and we do understand
changes in the global macro environment and even regional changes around the world.
Douglas Goldstein: When people look at a portfolio or sometimes people want to say that, ìThatís
a conservative or thatís an aggressive or moderate portfolio,î do you find those words
are appropriate to use when looking at a portfolio that you would manage?
John OíConnor: I do and the one thing I disagree with when a lot of people talk about it is
where diversification comes into that equation.
A conservative portfolio with us by its nature have more bonds than stocks and today more
short terms bonds, but if somebody says that itís a conservative portfolio so you shouldnít
have small stocks or emerging market stocks, I would vehemently disagree with that, you
should have them because of their, to put it in laymanís terms, theyíre going to be
[zigging] when large stocks are going to be sagging and that by definition, decreases
portfolio risks.
Thatís the way we view risk management in a portfolio.
Douglas Goldstein: How can people follow your work?
John OíConnor: The best way we think is call their advisor and ask them about it because
thatís the way we work with clients but we do have a website
and itís www.3dadvisor.com.
Weíre always happy to talk to people but weíll typically refer them to an investment
professional that can get to understand their goals and objectives.
Douglas Goldstein, CFPÆ, is the director of Profile Investment Services and the host
of the Goldstein on Gelt radio show (Monday nights at 7:00 PM on www.israelnationalradio.com.
He is a licensed financial professional both in the U.S. and Israel.
Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA,
SIFMA.
Accounts carried by National Financial Services LLC.
Member NYSE/SIPC, a Fidelity Investments company.
His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered
at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.
Disclaimer: This document is a transcription and/or an educational article.
While it is believed to be current and accurate, divergence from the original is to be expected.
The original podcast can be heard at https://sites.google.com/site/goldsteinradioshows/.
All information on this website is purely information and should not be used as the
sole basis for making financial decisions.
The opinions rendered herein are those of the guests, and not necessarily those of Douglas
Goldstein, Profile Investment Services, Ltd., or Israel National News.
Readers should consult with a professional financial advisor before making any financial
decisions.
Please see the complete disclaimer at https://sites.google.com/site/goldsteinradioshows/.