Charter Trust Company currently operates under the regulatory oversight of the State of New Hampshire Banking Department. We file quarterly FFIEC 041, Report Filing for Non-Depository Trust Companies with the Banking Department.
Each portfolio is constantly monitored by our internal accounting and portfolio systems for potential concentrations, securities that have not passed acceptance by the investment group, specific prohibited securities and securities that present a liquidity concern. These are flagged and an answer must be provided to the investment and compliance groups, as well as to compliance, as to how the security entered the portfolio and why the security should remain. If approved, an exception is allowed, but with increased review levels.
Securities that are not part of the general market such as 144(a) securities, limited partnerships, investment trusts, foreign investments not traded on a major exchange, manager-of-manager structures, external advisors with control privileges and similar securities must be approved by both the CEO and CIO with supporting documentation.
Additionally, the portfolio holdings are audited by both internal and external audit, and the State of New Hampshire Banking department, to make sure we are following our policy and practices.
The time horizon is determined by the length of time it takes the security to move from extreme undervalue (< 80% of fair value) to extreme overvalue (> 130% of fair value). This time period could be as short as 12 months or as long as 10 years and sometimes longer.
Charter Trust Company’s investment philosophy is safety of principal, growth at a reasonable price and rational income production combined in an array of investments to suit each client’s objectives and risk tolerances. Matching investment selection with client goals is of paramount importance.
We put great effort into establishing appropriate investment objectives for each of our clients at the outset of the relationship, so every client’s needs, circumstances, and risk profile are fully considered in the establishment of an ongoing investment goal. In the case of a retirement plan, the most important objectives often deal with the dual need for reliable income and long term growth so that each participant meets individual retirement goals.
Charter Trust Company believes each client has a unique set of expectations and requirements. Thus, we tailor each portfolio to best meet these requirements.
Whether selecting individual securities or mutual funds, we combine a “Top Down” and “Bottom Up” approach which results in the evaluation of the economy and market outlook. The investment team identifies key investment themes and establishes general sector guidelines. Once the appropriate sector evaluation is determined the team focuses on fundamental company research.
Individual stock selection is based on:
- Attractive and stable long-term growth prospects
- Exposure to the strongest growth industries
- Reasonable current valuations
- Industry leadership
- Strong management teams
- Sound business models
- High levels of profitability
Charter Trust Company believes that normally high quality fixed income investments, both in individual securities and mutual funds, make sense for many investors. Accordingly, most individual fixed income investments are in government backed bonds (US Treasury or Agency bonds and Agency-backed mortgage securities), insured certificates of deposit, or corporate bonds with ratings typically of single “A” or higher from Standard & Poor’s or Moody’s. Municipal bonds with like ratings of “A” or higher are purchased when appropriate.
Generally speaking, there is usually little or no additional yield to be gained by making commitments beyond ten years, particularly in consideration of the in principal risk associated with longer maturities. As a result, we generally purchase few investments maturing beyond that period.
To avoid gambling on the direction of interest rates, we establish the longest maturity for the account, then stagger maturities fairly evenly between short term bonds and the maximum maturity. This has two benefits. First, we avoid the risk of having a major portion of the portfolio mature at a time when interest rates are low. Conversely, when interest rates are higher, there will be a steady flow of maturing issues to reinvest at those higher rates.
Once the initial investments are in place, maturing issues will generally be reinvested at the long end of the maturity schedule. Since rates at these longer maturities are usually substantially higher than short term rates, the average return will be higher than would be available strictly with short maturities.
The majority of analysis is conducted internally by the investment professionals directly responsible for making recommendations and implementation. Investment professionals also meet with clients. The combination of research, investment recommendations, implementation and interface with clients brings a level of reality to the process.
In addition to internal econometric and fundamental research, we use independent research support organizations such as Argus Research, Bloomberg and Reuters. We favor organizations that complement our efforts with a specific area of expertise and organizations that do not have associations with market makers, investment banking or active in the trading of securities researched.
Portfolio commentary is available upon request, either in a written format, in person, or on a monthly, quarterly, semi-annual or annual basis.
On a monthly basis, a bulleted version of the commentary is updated and available upon request.
Printed Monthly Reporting.
Clients can access their accounts online and view real-time reports.
Client reviews occur at several levels that are a direct function of the client’s requirements. Formal, in persona reviews are made on a regularly scheduled basis on the client’s schedule. While these reviews are formal, all portfolios are continuously monitored for positions in asset allocation, investments, price fluctuations and value relative to established benchmarks and approved holdings.
Diversification occurs at several levels. At the major asset allocation level a portfolio should be broadly exposed to an appropriate level of cash, stocks and bonds that matches the investment objectives of the client. This is at the most basic level, but it is one of the most important. Asset allocation impacts over 85% of the total portfolio performance.
The next level includes diversification of cash segmenting active money market investments and ultra short time instruments. This level also includes diversification amongst major bond segments such as treasuries, corporate bonds, mortgage backed securities and agencies. Bonds should also be diversified to various durations so as to avoid over exposure to changing interest rates. Stock diversification can be segmented across domestic and international markets. Domestically, diversification can encompass large, mid and small cap securities as well as diversification across major market sectors such as consumer, energy, transportation and financials. International market diversification can include diversification over major markets.
Each level of diversification is a direct function of investment objectives and expected outcomes balanced by acceptability of risk or volatility.
We calculate performance via a third-party provider, following AIMR PPS standards.
In general, we favor the S&P family of indices when measuring stock performance. The S&P are constructed such that they are in constant sync with the markets and reflect a true representation of the investable market segment. S&P goes to great lengths to assure that stocks selected for inclusion pass strict quality and liquidity screens. It is also possible to measure segments of the broad market using S&P indices because they are constructed in a mutually exclusive basis. Since no overlap exists between S&P indexes you are able to truly determine performance of each segment. This permits the investment professional to evaluate performance against a broad spectrum such as the S&P 1500 or each of the segments: S&P 500, S&P Midcap or S&P Small Cap Index. These can be further segmented into industry groups. A recent collaborative with Financial Times and S&P allows fee analysis and portfolio construction to be broadened to include international markets.
In the fixed income area we prefer to use the “Barclays Aggregate Bond Index” It is a broad-based index that is used most commonly to represent investment grade bonds being traded in the U.S. It is a market capitalization weighted index (meaning that the securities in the index are weighted according to the market size of each bond type) that includes Treasuries, government agencies, mortgage-backed bonds and corporate bonds.
- Our investment process is well defined, repeatable and disciplined such that the subjective emotion of managing securities is reduced to a minimum.
- Investment decisions are made by in-house, experienced professionals in a team environment. This is in contrast to a “superstar” environment where one or two individuals are decision makers with the other members as implementers.
- Investment professionals regularly interface directly with clients. This brings a level of reality to decision-making not available when investment decisions are made by individuals who rarely or never interface with clients.
- Investment professionals make real buy and sell decision on individual portfolios and are not taking orders from a centralized or remote location.
- Investment decisions are made without influence from business relationships of investment banking, market making or research activities. Charter Trust has only one business – investment management for our clients, exclusively. Sixth, investment professionals have upwards of 30 years of individual experience, are involved in original research, have been published in professional journals, are directly involved in professional organizations and have global experience.
- Investment professionals have upwards of 30 years of individual experience, are involved in original research, have been published in professional journals, are directly involved in professional organizations and have global experience.
Turnover is the purchase and sale of various components within the investment portfolio. Turnover of 100% means that the dollar value of the portfolio is bought and sold during the measurement period (usually one year). This does not mean that every security is sold or exchanged for another, rather that the value of the changes equals the portfolio value. Charter Trust’s typical turnover is 15% to 30% of the portfolio’s value in a given year.
Sell decisions can be triggered by three events.
- The first involves a violation of an earlier established pricing floor. When each security is reviewed by the investment committee a high and low price is established. If a security drops below the pricing floor, an immediate review is required. At that time the investment professional responsible for the area will determine what event has caused the stock to fall below the floor. If the decline has been caused by a valid event, the security will be sold. A valid event can be far ranging and may include fundamental issues, econometric or industry specific activity.
- A second reason for selling a security could be to reduce stock specific risk. If a security has performed exceptionally well over a long period of time, the increase in value could place the overall value of the security in excess of 5% of the overall portfolio. In an effort to keep the portfolio diversified and balanced, an overweight security may be trimmed back to a level below 5%.
- The third event that could create a sell action would be a change in overall asset allocation or industry weighting. If we believe a specific area needs to be reduced due to decreasing relative benefit, we will begin to reduce individual stock exposure to the area. This also means another area is beginning to show stronger relative performance value.
Internal research is considered the most important component in the investment process. External research is used as a complement and input to the overall decision-making process.
Investment decisions are made in a collective environment that include the members of the Investment department. Members of the Investment department represent areas of expertise that include:Asset Allocation, Domestic Stocks, International Stocks, Bonds and Industry Groups.
Decisions are made by the investment committee regarding recommendations on asset categories and individual stocks and bonds. Each client’s account is managed on an individual basis by determining the applicability of the recommendations to each account.
Bond portfolios should be invested to ensure liquidity and diversification with consideration given to:
- Asset allocation among different types of bonds
- maturity schedule
- credit risk
- interest rate risk.
Municipal bonds are an appropriate investment for risk-averse investors. Historically, municipal bond default rates are lower than that of corporate bonds.
For a low-rated bond (BBB) maturing in 10 years, the municipal bond default rate is 0.30% vs 4.74% for a corporate bond with the same rating and maturity. For investment-grade municipal bonds, the default rate for 2013 was 0.107% and 0.807% for “high yield” or non-investment grade municipal bonds. For non-investment grade corporate bonds, the default rate was 2.10%, or more than 2.5 times as high as similarly rated municipal bonds.
The most common types of municipal bonds have a steady stream of revenue backing them (i.e. property taxes, sewer or water revenue, utility revenue).Default rates courtesy of – S&P Dow Jones Indices
For an individual investor to invest in municipal bonds, there are two options: mutual funds/ETFs (exchange-traded funds) or individual bonds. The majority of individual muni bonds have a minimum piece size of $5,000, with increments thereafter of $5,000. Clients of Charter Trust work with our fixed income traders to purchase bonds for them. If you are not a client, you would need to purchase these through a broker, just as you would purchase a mutual fund or ETF through a broker (or through your 401(k) plan, trust plan, etc that uses a broker).
If you only have a small amount of money to invest, the best way to get diversity is through a mutual fund or ETF. There are many things to consider when it comes to municipal bonds (i.e. taxes, maturity, yield, rating, geographic diversification), so make sure that you understand what you are buying before you purchase a mutual fund/ETF or an individual bond. In general, municipal bonds offer less yield than taxable bonds like corporates and agencies because you are receiving a federal & (sometimes) state tax exemption, so generally you would want to be in a high enough tax bracket to make the lower yield worth the tax exemption.