A New Delivery System for Cutting-Edge Portfolio Risk Management

By Jerry Miccolis, Chief Investment Officer, Principal, and Senior Financial Advisor

As you know, we have been working diligently to improve the downside protection of your investment portfolio without sacrificing its upside potential. Our recent risk management activities have included adding new portfolio diversifiers (e.g., managed futures, market neutral strategies, etc.) to defend against the inevitable “normal” bear markets, and also explicit “safety net” protective devices (e.g., the EMERALD-based structured note) to help safeguard you from those rare but devastating market collapses when “contagion” causes diversification to temporarily fail and all asset classes to decline suddenly at once.

The risk management improvements we have implemented to date have been working quite well, and have still allowed you to significantly participate in the ongoing market recovery. They have, in fact, attracted the attention of other firms in our industry, who have asked us to share our research, analysis, and experience with them.

We continue to work to further improve the efficacy of our risk management methods. These improvements are aimed at areas such as:

•  delivering a similar level of diversification to accounts of all sizes;

•  enhancing the coverage and reliability of our catastrophic risk protection; and

•  being able to react nimbly to economic and market signals and dynamically adjust our asset allocations (e.g., exiting from, and/or rotating among, certain market sectors) accordingly.

It has become clear to us that, to make these next rounds of improvements operationally feasible, an improved method of delivery to you is necessary. Accordingly, after exploring a number of approaches, we have begun the process of establishing Brinton Eaton’s first mutual fund. This will allow us to apply these enhanced risk management strategies uniformly across all client portfolios and act on very short notice.

Our intent would be to insert the mutual fund as a component in your portfolio. This would result in your portfolio possessing very sophisticated risk management without disrupting your finely-tuned, customized asset allocation. We will, of course, be providing much more explanatory material on our plans in the months ahead.

As you might imagine, establishing a mutual fund is a long and painstaking process, requiring various levels of regulatory filings, reviews, presentations, and approvals. We will be keeping you apprised of the firm’s progress between now and our anticipated mid-year 2011 roll-out. In the meantime, be assured that we will continue to research, develop, and implement additional risk management improvements to your portfolio as appropriate, while we work to expedite the establishment of our new fund.

As always, please let us know if you have any questions along the way.