RIA takes low-correlation strategies to the market

FWR Staff

10 September 2007

Emerald Asset Advisors' allocation strategies find homes at Schwab and FTJ. Weston, Fla.-based RIA Emerald Asset Advisors is making its Emerald Allocation Strategies available to other independent advisors, initially through Schwab's Marketplace and the FTJ FundChoice investment programs. EAS uses mutual funds and ETFs to deliver performance that is largely independent of market conditions.

"Since investors with a net worth below $1 million typically cannot invest in hedge funds, this group has been looking for alternatives to traditional strategies for some time," says Emerald's CIO Robert Isbitts. "We have used EAS for our firm's clients for years, and now we invite other independent advisors with clients at all levels of wealth to access them."

Three portfolios

EAS offers three portfolios with individual performance composites.

The Hybrid portfolio exhibits low volatility and correlation to broad markets, and it uses mutual funds and ETFs to offer daily liquidity, greater transparency, and lower costs. The Concentrated Equity portfolio is a varied mix of equity styles that concentrate on long-term capital growth with limited holdings. This strategy also pursues lower volatility levels by purchasing short-index securities as a hedge during risky times. Finally, the Global Cycle portfolio invests in market areas that exhibit high short-term volatility but capitalize on long-term trends. Again, short-index securities act as a hedge during periods of market risk.

Some market environments simply don't work for long-term investors who restrict themselves to traditional approaches to asset allocation, according to Emerald portfolio manager Matt MacEachern. "EAS employs a set of strategies that have low correlation to the broad stock and bond markets, while offering varying degrees of expected volatility," he says. "This allows the advisor to allocate among the strategies in line with each client's risk tolerance. Using this trio of low-correlation portfolios, each with a different level of expected volatility, the advisor can customize EAS to each client's risk tolerance."

There's a $250,000 minimum on Schwab's Marketplace program. FTJ has no minimum. The Schwab version of EAS uses no-load mutual funds and ETFs; FTJ uses no-load funds only -- so far anyway.

Schwab's Marketplace is an open-architecture platform with hundreds of participating managers.

Allan Budelman, a partner of Emerald and a member of the EAS portfolio-management team, says the point of EAS "is to make money, not to track the broad stock and bond markets."

Emerald manages around $270 million. -FWR

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