Asset Allocation Philosophy and Framework

The primary goal of asset allocation at Brown Brothers Harriman is the preservation and growth of our clients’ wealth. We focus on protecting portfolios against the threat of inflation and adverse market action through diversified investments in asset classes, which we believe will enhance performance while tempering portfolio volatility.

Each investment decision is based on fundamental and quantitative research and is guided by the sound judgment and insight of our experienced investment professionals. Academic studies and our own experience show that asset allocation is a key determinant of long-term returns, and therefore forms the basis of the investment guidance we provide our clients. Asset Allocation at BBH is:

Strategic
We seek durable insights into the role each asset class plays in order to align portfolios with our clients’ goals (for example: income generation, a balance between growth and income, a focus on growth, etc.) Tactical allocation, or market timing, can be costly, tax-inefficient, and detrimental to the ultimate objective of wealth preservation.

Value-Driven
No investment is so attractive that we will buy it at any price. We analyze the value of asset classes relative to their own history and to other asset classes in order to understand the opportunities presented by undervaluation, or the risks accompanying overvaluation. A naïve reliance on historical averages or projected price trends, without reference to valuation, can lead to permanent loss of capital as overvaluations correct.

Long-Term
Longer-term goals require longer-term planning. Rather than attempt to predict transitory market moves, which are often driven by sentiment, we focus on the fundamental return potential of each asset class and the risk associated with it. Changes in asset allocation are therefore a result of meaningful shifts in market valuations or changes in client circumstances.

Diversified
Asset classes provide different benefits to a portfolio (income, growth, liquidity, etc.), and uncorrelated asset classes help to mitigate overall portfolio volatility. We invest our clients’ portfolios across a wide variety of asset classes, and regularly analyze new asset classes to understand how their inclusion in portfolios might enable clients to meet their investment goals more effectively.

Customized
Guideline portfolios form the basis for conversations with our clients, at which point individual conditions drive the ultimate allocation decision. Factors such as taxes, inflation, liquidity or cash flow requirements, expected spending needs and tolerance for volatility are all taken into consideration when constructing individual client portfolios. Relationship Managers continually review those allocations with clients in order to reflect the best thinking of the firm’s Asset Allocation Committee and to take into account potential changes in client circumstances.

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