A partnering institution's investment platform may include an investment program in which FundQuest holds discretion. In these programs, FundQuest employs a 4-step process in the construction and management of its portfolios:

Step 1: Asset Allocation (Strategic)

The foundation of FundQuest's investment process is asset allocation - the amount of a portfolio allocated between equities and fixed income. In 1991, Brinson, Singer and Beebower published one of the most renowned studies stressing the benefits of asset allocation. The study concluded that the asset allocation decision is the most significant contributing factor to overall performance, accounting for more than 90% of the period-to-period variation in returns. It was found that other factors such as individual security selection and market timing attribute to less than 10% of performance variability.

Step 2: Portfolio Mix (Tactical)

After setting the strategic allocation parameters, FundQuest creates a tactical portfolio mix. Within the equity and fixed income asset classes, a number of sub-asset classes or styles exist that must be factored into the portfolio mix. The most appropriate combination of these categories is determined by the amount of risk that is expected within each portfolio.

Step 3: Security Selection

Portfolios are populated with the most appropriate securities that match the designated portfolio mix. FundQuest's unbiased approach allows its investment professionals to recommend the best money managers and fund families. FundQuest employs an extensive, on-going process, screening mutual funds and conducting separate account manager due-diligence.

FundQuest uses a proprietary system to screen and rank mutual funds.

Each fund is taken through a multi-step process, which begins with an initial analysis of:

  • Historical Returns
  • Risk
  • Expenses
Additional quantitative analysis is performed based on criteria such as:
  • Sector Concentration
  • Manager Tenure
  • Assets Under Management
  • Cash Concentration
  • Tax-Efficiency
  • Median Market Capitalization
Finally, funds are plotted for current style and style consistency.

Portfolios are then constructed from the remaining funds into optimal portfolios. The FundQuest Investment Committee meets regularly to review portfolios and their holdings and make any changes that are necessary. FundQuest offers re-balancing as well as tax-efficient options to their portfolios.

Step 4: On-going Portfolio Management

The FundQuest Investment Committee reviews portfolio composition, performance, and investment change recommendations. On a continuous basis, the relative performance, risk parameters and other characteristics of each security held in a portfolio are reviewed to determine whether it continues to meet the criteria established for inclusion in the portfolio. The Investment Committee maintains a Watch List of securities that have recently shown signs of underperformance or trends that warrant further scrutiny. Securities that no longer meet the criteria are removed from portfolios and suitable replacements are found.