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Capital Asset Management offers a
Nobel Prize winning approach to investing.

Each of our advisors is committed to high
level customer service.  Each serves clients on
a fee basis determined by total portfolio value.
Clients are welcome to consult with more than
one manager.
   
 
 

General Principles

Our approach to investing is straightforward. We use low-cost institutional managers that construct passive asset class mutual funds, and we diversify broadly to significantly reduce non-market risks.

Passive asset class investing and broad global diversification are rooted in the principles of Modern Portfolio Theory (MPT). Several leading financial economists, three of whom received the 1990 Nobel Prize for their contributions, conducted research resulting in the formulation of MPT. Our investment strategies are based on MPT. Many institutional investors have adopted the concept of asset class investing. We believe that passive asset class investing offers a lower cost, lower risk alternative to active selection of individual securities or actively managed mutual funds or separate accounts.

Our investment philosophy fully supports, and is supported by,
The Uniform Prudent Investor Act. Our approach provides for a fully diversified, cost conscious, performance measured methodology.
The American Law Institute, in drafting The Uniform Prudent Investor Act, stated the following:

 
Economic evidence shows that the major capital markets are highly efficient.


 
Investors are faced with potent evidence that the application of expertise, investigation, and diligence in efforts to “beat the market” ordinarily promises little or no payoff after taking into account research and transaction costs.


 
Modern Portfolio Theory is adopted as the standard by which fiduciaries must invest funds.

On the equity side we believe in extensive diversification, both within each asset class and across asset classes. We allocate non-trivial fractions to international asset classes (large-cap, small-cap, value, emerging markets) in addition to domestic classes. We diversify along dimensions of risk formalized in the Fama-French three factor model: equity, small-cap, and value. We believe the three factors correspond to distinct dimensions of risk (which is the prevalent, albeit not exclusive, view in the academic world as well as among a majority of investment professionals and sophisticated institutional clients). We do not believe that individual security selection, market timing, or chasing today’s “hot hand” managers add value to a portfolio. In this, too, we are in agreement with the vast majority of economic scholars and a substantial and growing number of professionals and institutional investors.

We view the fixed income portion of a portfolio as a diversifier for the equity portion. As such, we avoid volatile fixed income classes (long-term bonds, junk bonds, mortgage-backed securities); indeed, the risk-expected return characteristics of a portfolio are improved if any additional expected return that may come from such bond classes is addressed by varying the stock/bond mix instead. There are solid arguments, both empirical and theoretical, supporting this view.

Therefore we restrict fixed income investments to high quality, short to intermediate term bonds (including callable Agency bonds, which at this time we believe offer the best risk-return tradeoff). Since there isn't much differentiation between such bonds, diversification across a very large number of securities in this asset class is not as important. For this reason, our experienced fixed income department builds customized portfolios of individual bonds for our clients–without trying to predict the future direction of interest rates, changes in the shape of the yield curve, or changes in credit spreads. As in the case of equities, we believe there is no benefit from “bond picking” (finding mispriced securities), market timing, or finding the “hot” mutual fund or separate account manager.

 

PASSIVE INVESTMENT MANAGEMENT

The term "passive" describes mutual funds that are not managed based on stock predictions or market timing, but are a collection of securities from particular asset classes, such as large company value stocks or international stocks, among many others. This approach is guided by Modern Portfolio Theory (MPT).

MPT posits that portfolios comprised of asset-class funds with low turnover will, over the long run, deliver the highest returns for a chosen level of risk.

Clients who opt for Passive Investment Management gain access to the Dimensional Fund Advisor (DFA) mutual funds that generally are available only to large institutional investors. These funds are overseen by those with access to the rigorous, ongoing research of the world's leading financial economists. (Click here for further information on DFA)

Advantages of this approach include:
 

- Lower costs than typical mutual fund investments - Passive, asset-class funds typically have lower operating expenses than do comparable, actively managed funds.

- Greater tax efficiency - CAM offers a tax-managed series of funds which have relatively low turnover and result in less of a tax bite.

 

   


 
   
   
 

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Capital Asset Management
702 North Shore Drive
Suite 500
Jeffersonville, IN 47130-3104
Phone: 812-288-2881