Our Approach
PMA knows that every investor has unique requirements and concerns. We work closely with clients to define their current needs and long-term goals. We guide both individual and institutional clients as they make their key decision: the level of risk they need to assume in order to achieve their financial goals.
Our Investment Philosophy
PMA’s investment philosophy balances four key tenets:
Strong emphasis on risk control through diversification
As we manage portfolios for our clients, we use a variety of investment techniques to manage risk. One of the most important is diversification. Using open-end mutual funds and ETFs, we seek to build well-diversified portfolios that are broadly exposed to various segments of the equity and fixed income markets.
Low-cost
Managing investment costs is important. We seek funds that have low operating costs and a low turnover of the individual securities held by the fund. We blend actively managed and passive funds to create portfolios with a low overall cost structure while still maintaining the potential to add value through active management. Over time, even a modest difference in investment costs can affect long-term performance.
Fully transparent investments
Using transparent investments like open-end mutual funds allows us to evaluate our products and portfolios consistently through time. We do not use private investments in our clients’ portfolios due to a general lack of transparency, in addition to their typically high fees and illiquidity relative to open-end mutual funds and ETFs.
Long-term focus
We approach portfolio construction with the long term in mind. Our clients invest to meet a variety of goals across many different time horizons, but we believe that short-term thinking and tactical portfolio adjustments often detract from investment performance.
The PMA Difference
Our Academic Roots
Founded in Philadelphia in 1982 by a Wharton Professor of Finance and a Philadelphia businessman, PMA has a 40-year history of investment management guided by academic finance.
Philosophy and Process
PMA centers its investment philosophy around risk-control. We help clients understand that the most important decision they can make is deciding how much risk they can comfortably take with their financial assets. PMA uses current academic techniques for evaluating mutual funds, selecting only those funds that we believe are the best fit for our diversified, risk-controlled portfolios. Of the 7,000 or so U.S. mutual funds available today, only about 60 to 70 make it through PMA’s review process.
Relationship-Driven
We build and maintain relationships through our core values of honesty, integrity, and responsibility. Approximately 40% of our clients have remained with PMA for 20+ years.*
*As of 12/31/21
No Hidden Compensation
By design, we are a boutique fee-based firm and we are compensated only by clients, not by any other source. We are solely focused on what is best for the clients that we serve.
For Institutional Clients
When PMA works with institutions, we begin by reviewing the purpose of the investment. Is the money for an endowment that must balance current income with capital appreciation? For what purpose are the assets to be used and over what time period? Once the goals and parameters are clear, we guide the institution to an investment strategy that meets its needs.
For Individual Clients
PMA begins by reviewing an individual’s assets and current spending requirements. Often, we use financial software to produce a detailed financial projection that shows our clients how long their assets are likely to last at a certain standard of living, given various assumptions about inflation and investment return. No one knows with any certainty what the future holds, but the model helps provide a clearer picture of how investment decisions can affect wealth. Our clients are then able to take the next important step in the investment process: setting financial goals and selecting the level of risk they will take.
Case Studies
Helping a Professional Couple Enter Retirement with Confidence
The Challenge
A professional couple in their mid-60s, a lawyer and a doctor, seeks advice about their upcoming retirement. The couple has saved almost $6 million in financial assets invested in PMA’s moderate-risk portfolio, and they are apprehensive about transitioning from a lifestyle based on stable salaries to one where their living expenses will be covered by their investments. They want to review their current risk profile and spending habits to determine whether a change is needed.
PMA’s Process
In this scenario we would:
- Ask the couple to approximate how much money they currently spend to live.
- Discuss whether they intend to continue spending this amount during their retirement, and if they would be able to adjust their spending in response to a downturn in the markets.
- Use financial planning tools to illustrate that spending 5% or $350,000 a year would increase the probability of depleting their assets during their retirement, as compared to spending $275,000 a year.
- Present the client with a choice: We could increase the equity allocation (and therefore the risk level) of their portfolio to increase potential return, or we could keep the same level of risk to which they were accustomed and they would need to plan to spend less in retirement.
- Advise the client that we would revisit their plan on a yearly basis because life circumstances can change.
*This scenario represents a composite of discussions with a number of different clients. It is not reflective of one particular client’s experience.
Guiding Our Clients Through Extreme Markets: The Pandemic*
The Challenge
The onset of a global pandemic in February and March 2020 caused extreme volatility in markets. For example, on March 11, the Dow closed down 20.3% from its February high, launching the first bear market in 11 years. On March 12, the markets experienced their worst daily performance since 1987: the Dow fell a record 2,352.60 points, a 9.99% drop, almost a correction in a single day. Between February 12 and March 16, the Dow lost 9362.90 points, a 31.7% decline. The drop in stock prices was so massive that the New York Stock Exchange suspended trading several times during those days.
PMA’s Process
Our professionals were in regular contact with each other and with clients during these events. When the first hints of the pandemic rattled markets in February 2020, PMA sent a special notification to clients on February 27 which stated, in part, as follows:
Our recommendation is to not make any changes, for the following reasons. First, selling stocks during a time like this means turning paper losses into realized losses. You do not truly realize losses until you sell. Second, for clients in taxable accounts, selling now may generate large capital gain taxes, a consequence of the decades-long bull market. Third, we have always stressed long-term investing in the context of a natural and deep-seated optimism about the long-term prospects of America and the world’s future.
On March 13, PMA reiterated this advice in a communication to its clients: “Selling out of the stock market during these periods of volatility and moving exclusively into cash or bonds is a type of ‘market timing’ effort that is not the recommended strategy. Those who followed such a strategy during the market turmoil in 2008-2009 missed the subsequent significant recovery reflected in the chart above.”
Finally, on March 23, 2020, shortly after governmental orders required businesses to work remotely, PMA wrote to its clients about its remote operations and also stated the following: “History and studies have shown that when markets rebound from unpleasant declines is not predictable in advance, and that missing a very few days of the rebound when it occurs has an adverse effect on a portfolio’s performance. As said by Charlie Munger, the partner of Warren Buffett, being able ‘to react with equanimity’ to large equity declines is ‘in the nature of long term shareholding.’”
The Resolution
PMA’s clients who followed this advice were able to benefit when the markets recovered from these declines and, in fact, reached new highs. Both the Dow and the S&P 500 finished the year 2020 at record levels despite the public health and economic crises.
*This scenario represents a composite of discussions with a number of different clients. It is not reflective of one particular client’s experience.
