Investment Approach

We believe three interrelated decisions impact performance:

• Strategic asset allocation, usually determined by a client's risk preference and time horizon;
• Tactical deviations from the strategic asset allocations; and
• Manager selection.

Strategic Asset Allocation

Market Street views asset classes as either lower volatility (cash and investment grade fixed income) or higher volatility (high yield bonds, hedge funds, equities, real assets and private equity).

• We recommend lower and higher volatility allocations based upon a client's risk preference and investment time horizon. 
• Market Street utilizes an array of asset classes within the lower and higher volatility categories to enhance the diversification of our clients' portfolios. 
• Client portfolios are further diversified into specific strategies within each asset class.

Tactical Deviations

Tactical variations from a client's Strategic Asset Allocation are sometimes made based upon Market Street's view of the relative attractiveness of different stock and bond markets. Tactical deviations tend to be more short term in nature, and usually play a minor role in portfolio returns at Market Street for two reasons:

• Our tactical variations are usually small; and 
• Market Street seeks to generate long-term capital gains which are taxed at a much lower rate than short term gains.

Manager Selection

Market Street's manager selection process aims to identify those managers who have proven consistent outperformance of an appropriate benchmark. Furthermore, Market Street focuses on after-tax returns and will not select managers with excellent pre-tax returns if their after-tax performance is substandard. This represents an extremely high hurdle:

• Research indicates that less than a third of funds outperform their respective pre-tax benchmark over a five year period; and
• Within this subset, there will be funds that are too small, that have lost key personnel or that have poor after-tax returns.

From a greatly reduced pool of potential managers, Market Street's research process identifies those funds where we have the most conviction of persistent future outperformance.