A better process designed for better results
Fortuna Investors was born out of a search for better investment results. We were unsatisfied with the outdated approach offered by mainstream financial advisors who risk excessive downside and decades of stagnation. Before we were Advisors, we were Investors, and we founded Fortuna based on the simple principle that we should offer clients the same investment management that we would want for ourselves, our family and our friends.
Process
Fortuna: Our investment process is based on a quantitative, evidence-based approach. This means that we never invest based on gut feelings, and we never have to rely on an interpretation of current events, fundamental, or technical analysis to make optimal decisions. What we buy, how much we buy, and when we sell are all determined by strict, quantitative rules.
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The conventional advisor: Common approaches include relying on third parties’ due diligence or strategies, analysts’ fundamental or technical analysis, or simply using passive strategies that do not add value or enhance risk-adjusted returns.
Diversification
Fortuna: We believe in searching far and wide for opportunity. Just because stocks are in a downtrend does not mean that there is not significant opportunity in other assets. Our strategies provide opportunity for exposure to foreign and domestic stocks and bonds, agricultural commodities, gold, energy and other assets. Further, we don’t just practice diversification among asset classes, but among strategies. This enhanced diversification gives us a better chance of protecting capital while driving strong returns. The goal here is to maximize opportunity regardless of how the US economy is functioning.
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The conventional advisor: The conventional advisor’s clients are overly exposed to US stocks and bonds (this is known as “home country bias”). They may create portfolios with tens or hundreds of securities (stocks, mutual funds, ETFs), but when you look closely, you find that these portfolios move in near lockstep with US stocks or a blend of US stocks and bonds. Often when advisors do add in “alternatives,” their approach is naïve. They add this exposure through expensive funds (effectively eliminating their benefit), employ alternatives in too small of a size to make a difference to the portfolio, or use a buy-and-hold approach for assets that aren’t meant to bought and held.
Investing for total return
Fortuna: We invest to achieve the highest total return per unit of risk that a client is willing and able to take. This sounds like an obvious thing to do, but many advisors focus on “income” instead of total return. Fortunately, as an investor, you do not need to rely on income-producing assets to create income. If you achieve a positive rate of return on liquid assets, you can sell those assets and create income for yourself. To a rational investor, total return, net of taxes and fees, is all that matters.
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The conventional advisor: Many advisors create portfolios built with a focus on providing “income” for their clients. Advisors do this for one of two reasons - either it is their employment of a marketing gimmick that preys on a common misconception held by their clients, or it is the result of a fundamental misunderstanding of the basics of investment management.
“Investing for income” may seem logical at first, but what most clients actually seek to do is to invest to replace income, usually as a result of retirement or some other life change.
The income that an investment produces is only one part of the total return, and without consideration for the total return, an investor can bring in substantial income, but still end up losing money. For example, let’s say you buy $1000 worth of a fund that pays $100 in dividends in a year, but the investment itself goes down in value by $100 in that same year. At the end of the year, you have $100 in your pocket (from the dividend), but the investment is only worth $900. Despite receiving $100 in dividends, you are no better off than you were to start the year! Worse, you may even owe income tax on the dividend.
Many fund companies take advantage of retirees’ perceived desire for income producing assets, creating high-fee funds that fail to achieve competitive total returns, and many advisors are all too happy to manage their clients’ assets in this inefficient manner.
Who is actually managing your money?
Fortuna: We develop and manage all of our investment strategies in-house. We don’t farm out your portfolio’s management to third parties or rely on giant, slow moving investment committees. This means that you always have access to the real portfolio managers - the people who are actually investing on your behalf. This means we can be nimble, and that we can keep your total fee burden low. We will never use third party funds unless there is a very specific purpose for that investment that we cannot achieve directly at lower cost.
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The conventional advisor: Believe it or not, many advisors don’t actually manage their clients’ assets. Conventional advisors use mutual funds, Turn Key Asset Management Programs (TAMPs), or models built by big name brand firms. When you invest in this way, performance tends to be undifferentiated and costs can pile up.
Track record and transparency
It seems bizarre, but many advisors do not provide clients and prospects with a copy of their track record. You should ask yourself why that is.
At Fortuna, we publish our track record.
It is impossible to to make money and outperform all the time, but your advisor should always be transparent about their results.
Allegiance to you
Fortuna: Fortuna is 100% founder owned - we are structured as an independent Registered Investment Advisor. We built this firm because we were disaffected by industrial scale wealth management firms where conflicts of interest are ubiquitous. We owe no allegiance to any bank, insurance firm, or investment manager - our only allegiance is to our clients. We are fiduciaries, meaning that we are legally bound to act in our clients’ best interests. We receive no bonuses, commissions, or compensation based on how we invest clients assets.
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The conventional advisor: Many financial advisors are affiliated with large firms. By default, these advisors must serve two masters - their firms and their clients. Advisors often receive bonuses and commissions based on product sales or directing their clients’ investments to certain funds or strategies. This creates perverse incentives and can adversely affect clients. Further, these advisors often have to choose investments based on a limited menu of options furnished by their parent company, limiting the opportunity set for their clients. Perhaps worst of all, some advisors work for publicly-traded companies, which are inherently profit-maximizing, even at the expense of their clients.