Asset Allocation is the central theme of our investment philosophy and the dominant factor in determining portfolio return. Studies have shown that asset allocation decisions account for more than 90% of the variation of total returns, while security selection accounts for only a small residual portion of the variance in total returns. Therefore, the overwhelming determinant of success of investment strategy is not which securities or mutual funds were bought or sold, but how the assets were divided among the various classes.
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Stock and bond markets are composed of numerous styles and sectors (i.e. large cap value, small cap growth, government bonds, corporate bonds, etc.). To access the return potential of the financial markets and to reduce unnecessary risk, the Portfolio Structure must be diversified within these asset classes as well. Managers who adhere to the selection of a special style of stock or bond tend to outperform managers who buy stocks or bonds with a wide range of characteristics. By utilizing these distinctions appropriately, we believe that we can enhance a portfolio’s return, and also reduce volatility.
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To implement these asset management strategies, Monroe Bank relies on Specialist Managers who invest in distinct sectors and markets. Specialists, who adhere to a distinct investment discipline, such as large company growth managers, have an opportunity to hone their approach and to anticipate favorable and unfavorable changes within their area of the market. This focus provides the opportunity for greater consistency and predictability of results. In contrast, many money managers roam about the market in search of “good” opportunities, but they end up missing most.
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Portfolio management is a continual process. Once needs are defined, a plan developed, and a strategy implemented, an ongoing confirmation and reevaluation takes place. Each client portfolio is rebalanced regularly to assure that the mix of assets defined to achieve goals is constantly in place.

The natural movement of the markets may cause your allocations to drift away from original positions. This can create unintended and unnecessary risks. Rebalancing reduces risk and keeps the investment plan on the right course.
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