Philosophy

At TCS Financial Services we are a strong advocate that the majority of clients funds should be passively managed, more specifically in index funds. We believe the passive approach emphasizes broad diversification and market returns in a controlled risk, low cost and tax efficient environment. As such, TCS Financial Services invests a majority of its managed assets in Exchanges traded funds (ETF) and no load mutual funds.

While our company philosophy is that it is difficult for most active managers to add value over the course of an entire portfolio, we do believe that there occasionally exists opportunities in the market that are worth the risk reward of purchasing individual equities. The combination of these two approaches, passive with partial active management, is known as a core satellite strategy.

A core-satellite approach is an investment strategy that combines passive and active investment management styles. The idea is that the appropriate combination can achieve a synthetic enhanced indexing. The principal behind this strategy is that the majority of the portfolio will be to matching its benchmark with low risk, while a smaller portion will target enhanced returns so that when the two are combined, the portfolio is potentially able to beat its benchmark in a risk controlled manner.

We follow this strategy because of the underlying belief that for the most part the equities markets conform to the following principals:

• Asset allocation counts: The asset allocation decision (the amount we invest in stocks, bonds and cash, as well as the different sectors of equities) is the most important factor determining investment return. (See chart showing historical returns by sectors here)
  
• Diversification is key: Effective diversification strategies serve to reduce risk in a portfolio without sacrificing the portfolios long term expected return.
  
• Markets are highly efficient: Financial markets discover and distribute financial information quickly that it is impossible, over a statistically relevant period of time, for active managers to outperform the overall market.
  
• Costs and taxes matter: The high cost of active management makes it almost impossible to outperform indexed investment strategies consistently. Over time a diversified portfolio of indexed funds will, in the aggregate, generally produce a yearly after tax return measurably greater than that of a corresponding actively managed portfolio
  
• Market timing is a losing proposition: Academic research suggests that over the long run, the use of market timing does not result in market beating returns.
  
• Past performance has no predictive value: While past performance is the guideline most often used by the active managed investment community in selling future performance, most available data not only shows that past performance is of no value in selecting superior performing investments in the future, but also concludes that above average performance in the past often turns into below average performance in the future
  
• Risk and return are related: Investors who focus on the possibility of earning over the top returns must be prepared to accept the consequences of assuming excessive risk. In the short run, in particular, excessive volatility can be the investors’ worst enemy. (Market math a 50% loss means a 100% gain to get back to even)

Acceptance of this core satellite strategy requires understanding and acceptance of a passive investing philosophy. TCS Financial Services provides the assistance in understanding of how the markets work, the relationship of risk reward, the importance of diversification and reasonable expectations on what the market returns are.

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