The Strategic Income Portfolio is designed to provide a steady stream of dividends for those investors seeking total return of investment capital.

At Fabian Capital Management, we implement and then consistently adhere to a clear and definable investment strategy for our clients. The primary objective of this portfolio is to maintain both an attractive yield, while also seeking low volatility price appreciation, regardless of the climate in the financial markets. Our actively managed income-generating strategy was designed from the ground up to react quickly and decisively to whatever the market throws our way.

Our predominant investment philosophy centers around the allocation of capital amongst a combination of four “sleeves,” or asset classes of the strategy, which are: 1) dividend paying stocks, 2) fixed-income, 3) alternative income investments, and 4) cash. Subdividing the portfolio gives us the ability to hand-pick investments that are going to intermingle well with one another, so income remains high and volatility low.

A critical component of the Strategic Income Portfolio is the establishment of both minimum and maximum exposure limits in any one sleeve of the portfolio based on the long-term trend of the market. In addition, we analyze the individual sleeves to ensure they work together in a way which creates a cohesive portfolio while taking into account our tolerance for risk and the prevailing market trends.

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For example, during bull market periods we seek a higher allocation to dividend stocks and alternative income sources to take advantage of inflationary trends. Conversely, during bear markets or down-cycles, we shift our allocation towards high-quality fixed-income and cash to preserve capital, while still generating dividends in your account. In a transitional phase, or flat market, we may have a more balanced weighting across all asset classes to keep capital protected, but also invested to receive the benefits of income and total return.

Our core holdings in this portfolio consist of mutual funds and exchange traded funds (ETFs). The transparency and low-cost of an index-based ETF is an excellent way to get exposure to a wide variety of income generating assets. The mutual funds that we select typically represent a more complex or dynamic strategy that can’t be replicated using a passively managed ETF. Every investment we select has been extensively researched and screened so that it complements the existing holdings in the portfolio.

The active management portion of our strategy involves the development of macro themes for selecting areas of the market we believe will perform well over the short and long-term. Then we overlay our core risk management philosophy that is grounded in a strong sell discipline to protect capital when market conditions are unfavorable.

The right mix of income-generating assets and the expertise to navigate through any market condition are the two critical components of the Strategic Income Portfolio. You can no longer simply buy and hold an asset and just wait for the income to roll in. These days, you have to go out and grab it. At Fabian Capital Management, we know how to grab it.

To learn more about our Strategic Income Portfolio strategy and fees simply Contact Us today. Our minimums for this portfolio start at just $100,000.

In addition, we invite you to download our in-depth special report titled, The Strategic Approach to Income Investing.

3 Tenets of Successful Risk Management

During long up-trends in the stock market, most advisers rarely concern themselves with what their exit strategy would be if things do not go as planned. At Fabian Capital Management, we find ourselves looking deeper into our client’s holdings to evaluate and prognosticate any potential weaknesses. Stock market investors should be concerned with the preservation of their gains, and prudence suggests making changes when volatility is low and liquidity is abundant. With so many market participants “Whistling Dixie” during a bull market environment, we hold firm to the belief that hope is not a viable investment strategy.

Concept of risk managementA fundamental tenet of our firm is that risk within any investment should be identified and planned for well in advance of any purchases. It’s this type of strategic planning that will segue into successful changes to your portfolio as part of our active management philosophy. Once you understand the risks, the next step is developing a plan of action just in case the market turns against you. The strategies below outline the tools we employ to protect our client’s capital.

Stop Losses

I liken this option to a familiar feeling almost everyone has felt – purchasing a car. When you push back from the negotiation table and shake the salesman’s hand, in the back of your mind something is bothering you. It’s that feeling that you could have done better, but also the reassurance that you also could have done a lot worse. That’s the way we feel about stop losses, they are there to avoid the proverbial “big loss”, and as an active manager we employ this type of strategy for every position within our client’s portfolios as a cut bait point to stop the bleeding.

However, setting stop losses isn’t as simple as it might seem. It is truly an art form. A stop loss should not be a mere price or percentage below your cost, but a dynamic strategy that can change with market conditions. When formulating a game plan to set a stop loss, we always examine and apply technical analysis based on the price chart. This enables us to objectively monitor each holding on a daily basis and apply our sell discipline when needed.

Selling for the Safety of Cash

My grandfather used to say that “lost opportunity is a much better feeling than lost money”. In real world practice however, they can both feel like the great equalizer. This brings me to the second tenet we have written on the wall at Fabian Capital Management; selling for the safety of cash.

In today’s zero interest rate, ever inflationary world, cash is the most consistently underrated and chastised of all risk management tools. This mere fact makes cash a favorite of ours that we don’t foresee changing anytime soon.

Developing our strategy for cash includes a couple of different perspectives, or ways of looking at our client’s portfolio goals and objectives. For example, the simplest of all would be evaluating a price target for a position, and then simply reducing the holding for the safety of cash once the target was met. That way, we are selling on our own terms, not when the market decides to force our hand.

Another example could include expanding our cash positions when we meet a predetermined growth or income goal in a single year, or even single quarter, as to simply reduce the future risk of drawdown. The size, length of ownership, and plan for cash should all be taken into account when making this decision. In the past, we have even gone so far as to set stop losses for our client’s cash positions, where they would “stop in” to a given market after having to large, or too long a presence there.

Hedging Equity Exposure

This often complex strategy involves teaming investment holdings together that have an opposite effect on each other in an effort to net out or mitigate a negative outcome. For a typical portfolio that has a large amount of equity exposure, an example might include adding an inverse equity fund, or pairing high quality fixed-income positions to offset the volatility. The pros to this type of strategy is that if timed correctly, we can recapture some or all of the unrealized drawdown by selling the hedge once it’s reached a point where we are comfortable returning to our net long position. Another benefit would be that it allows us to keep highly appreciated positions in force without generating costly capital gains.

The crux of purchasing another holding, even if it’s a hedge, is that you now have to manage the inherent risk in that position as well. We have witnessed it countless times in individual investor’s portfolios, where a hedge is “bought and held” with every intention to sell it at a gain, or after their hypothesis becomes reality, but their timing and discipline goes by the wayside. As nervousness and anxiety sets in, the investor ends up selling the hedge at a large loss, then curses the day they purchased it. The psychology of investing can play tricks on all of us at times, but in our opinion it takes a trained mind to maintain the discipline and vigilance needed to execute a strategy like this successfully. At Fabian Capital Management, we only implement hedges in very specialized situations and monitor them daily.

As your investment advisor, we are committed to helping you reach your financial objectives.

One important way we do this is by providing a high degree of safety for your assets. This is why the investments you entrust to our firm are placed in custody with Fidelity Investments, one of the world’s largest providers of financial services.

Fidelity has more than 65 years of financial management experience and a reputation for integrity. Fidelity is the number-one provider of workplace retirement savings plans, one of the largest mutual fund supermarkets, and a leading online brokerage firm. We feel confident doing business with Fidelity to help serve your needs, regardless of market conditions.

Because the firm is privately owned, Fidelity is able to make decisions based on long-term benefits — not short-term gains — for the clients it serves. Fidelity’s financial stability, its compliance with industry regulations, and its insurance protection, all serve to help safeguard your investments.

The need to keep track of your transactions, including capital gains and losses, can be a burden – especially during tax time. Through our relationship with Fidelity, you will receive a simplified, consolidated statement each month that reflects your investment positions and transactions. At the end of the year, you will receive one 1099 tax form and a summary statement that will make preparing your tax return much easier.

In addition, Fidelity Capital Markets allows us access to a wide array of sophisticated trading solutions, proprietary technology, and experienced trading professionals that help us achieve the best prices available on your behalf.

Our firm, working together with Fidelity’s advanced brokerage platform and comprehensive asset protection, provides a solid foundation to help us safeguard your securities and help you achieve your financial objectives.

We know many of our clients hold or have the need for life, health, disability, long-term care, and annuities as an important part of their financial plan.

We are able to offer you these services to better integrate these products into your overall wealth management plan.

Every client of Fabian Capital Management receives a free, comprehensive life insurance and annuity review that addresses the following items:

Is your life insurance competitively priced versus today’s cost-efficient policies?
Do you have enough coverage, or too much coverage?
With recent economic conditions, have the internal costs changed?
Do you know, similar to real estate exchanges, insurance products can be exchanged as well?
Have you recently reviewed your long-term care and disability needs?
Through our extensive network of providers, we work with you to develop an insurance plan that can include asset protection, legacy planning, wealth transfer, and tax efficiency. Just like the financial markets, the insurance landscape is constantly evolving which brings its own unique set of risks and opportunities. By proactively reviewing your insurance needs we can assist you in protecting your family and your assets.

When we act as your insurance advisor, we follow a detailed approach in managing your personal insurance program. We will regularly monitor and update your insurance program to adjust to your ever-changing lifestyle and risk exposures. Fabian Capital Management is dedicated to providing you with a world class service team to analyze, plan, and implement your insurance needs.