Mr. Kattar: Eastern Investment Advisors is the asset management subsidiary of the largest mutually owned bank in the country. We manage $1.6 billion in separately managed accounts. 60% of that is in equities and 40% in fixed income, 80% is for high net worth individuals and the remainder is for institutions. Our investment process is comprised of three elements: top-down, bottom-up and quantitative. We manage portfolios using a team-oriented process. Our team is comprised of analysts and portfolio managers, but all of the portfolio managers also have responsibility for fundamental research, which is organized by sector. Our portfolios are mostly comprised of individual securities - stocks and bonds - but we do have a fair representation of ETFs to gain exposure to asset classes that would otherwise be difficult to include. On the equity side, we are large-cap growth, value and core equity managers who seek to add value through top-down tilts and fundamental research. In fixed income, we manage duration and incorporate thematic bets within high-quality portfolios.
TWST: Looking from the top-down, it's been a difficult 12 months. Would you tell us how events in the markets and the economy have impacted your investing approach?
Mr. Kattar: I'm not sure "rough" is the right word because I think the market is up a little on a trailing 12-month basis. "Extremely volatile" might be a better way to characterize things. Basically, it has been the tale of two markets. We crashed last year into March and have had a very sharp recovery since then. As measured by intensity - the size of the move per unit of time - both the decline and the recovery were among the sharpest market moves in history. Since the lows, stocks are up 60% in a mere seven months. We were conservatively positioned at the start of the year and began to add exposure as we approached the lows. Frankly, we missed the lows and were still slightly underweighted stocks through the spring. But we became more aggressive as the market recovery and economic recovery took shape, and we have been neutral for a while. Our strategy this year has been based on our belief that the market environment is driven more by big-picture events than by fundamentals. In such an environment, we are reluctant to take very large bets versus the benchmark in terms of asset allocation, themes, factors or sector weights. With one exception, we've dialed down factor exposures in the portfolios and concentrated risk in individual stock selection. The one exposure that we have had has been high quality, which helped us going into the March lows and has hurt us coming out of the March lows.
Tickers included in this excerpt: AAPL, AMP, APA, BAC, BG, DHR, GOOG, JPM, NEM, ROP, TLM, UNH, WLP
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