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Fund Selection

Rigorous, intensive due diligence process in evaluating managers
 

Litman Gregory has been evaluating and investing with active investment managers for almost three decades. We continue to believe in active management and take satisfaction in the fact that our portfolios have comfortably outperformed their investable-index benchmarks (net of fees) over the almost 30-year life of our firm.

Despite our success over the long-term with an active approach, we also understand the benefits of index investing. We have been assessing index products and managing index-oriented portfolios for nearly 15 years and appreciate that an index-focused portfolio can be a better approach for some investors. For this reason, we provide active, index-based, and hybrid portfolio strategy options for our clients.

Active Investment Strategies

Our due diligence process for managers and funds is grounded in our conviction, supported by extensive research, that skilled managers can and do deliver superior performance over the long term. An essential part of the value we provide is the multiple decades of experience we bring to bear in assessing and selecting exceptionally skilled managers. We engage in exhaustive quantitative and qualitative research aimed at uncovering those select managers with an identifiable and sustainable investing edge. Here are just a few critical elements we look for in our due diligence:

  • A clearly defined and well-articulated investment process supported by evidence of successful implementation over time.

  • A manager or team that demonstrates a high level of integrity, intellectual honesty, and a passion for investing.

  • Supportive team dynamics and a culture that insulates key investment personnel from noninvestment related responsibilities.

Few managers survive our rigorous due diligence process. We (and they) feel our process and our people differentiate us in our industry. For those we decide to recommend, include in our model portfolios, and/or invest alongside, our analysis is not a once-and-done exercise. We continue to closely monitor fund performance and investment decisions through regular updates with our managers, aimed at making sure they remain committed to their investment process and disciplined in its execution.

Passive Investment Strategies

While there aren’t as many nuances to researching passive investment strategies such as index funds and exchange-traded funds (ETFs), there are still many important elements to selecting the correct vehicle for our portfolios. Within each asset class, there are only a small number of ETFs or index funds that we believe are suitable for investment, given asset size, liquidity, and expenses. From that narrowed list, our team then filters by quality of sponsor, index construction and methodology, tracking error, and other implicit costs to owning the investment strategy.

Ultimately, we do not have a preference between index mutual funds or ETFs. All else being equal, we will opt for the product that gives our portfolios exposure to the desired index in the most cost-effective way. For us, that means we will likely choose the product with the lowest expense ratio.

Contact our Research Consulting team to learn more about our investment selection process and how you can access our Recommended List of Funds.

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