We believe the most critical decision in investing is asset allocation—specifically, how much to invest in stocks versus other assets. Historically, stocks perform well when the economy grows. As such, our investment strategy hinges on our macroeconomic forecast. To guide our approach, we evaluate economic direction, key sectors and the outlook for corporate profitability.
Since economic downturns typically follow financial panics, which are rare, we generally maintain a market-weight or overweight in stocks relative to fixed income, assuming all other factors remain equal.
Investment Purpose
Our investment purpose is to develop customized investment strategies that align with the client’s goals, time horizon and tolerance for risk. We strive to incorporate our client’s entire financial picture, not just those assets at Oakworth.
Primary Investment Objectives
While adhering to the client’s unique investment parameters, our overriding investment objectives are:
- Preserving the principal value of the dollars invested
- Providing a readily available source of liquidity
- Seeking to achieve a competitive rate of return relative to the client’s investment objectives and risk tolerance
Investment Strategy
Our investment process starts with an economic forecast and aims to deliver a well-diversified investment portfolio.
Develop Macroeconomic Forecast
- Is the economy going to grow, stagnate or contract?
- What does the economic data suggest?
Broad Asset Allocation Targets
- Based on our forecast, do we overweight stocks, bonds or cash?
- Stocks tend to outperform when the economy grows.
Setting Asset Class Targets
- Do we favor domestic or international? Small or large cap? Etc.
- Domestic stocks tend to do well when the dollar is strong.
- Small cap stocks outperform when the yield curve is steep.
Economic Sector Weightings
- Where are we in the economic cycle? Should we overweight financials, technology, or utilities, etc.?
- For example: Financials tend to perform better at the start of an economic recovery.
- Technology can perform best when the economy is in expansion.
Selecting Individual Securities
- What is the most effective way to invest? Individual securities, exchange traded funds or mutual funds, etc.?
- Is there an individual company which offers the best potential for return in the sector/class? Or, would it be more efficient to use a fund of some sort?
Deciding Appropriate Time
- Is now the right time to buy? Should we invest now, wait a little while or average into the markets?
- Has the market been extremely volatile? Has it been unusually stable? Is there any ‘big news’ coming up which could impact the markets, etc.?