Your Slice Questions

Every month or so I like to answer questions received from you as well as during media interviews. This week I will answer questions that a few readers have asked about slice assets and the role of these positions in their portfolio. I hope you find the following informative and interesting.

What is a slice asset? 

A “slice asset”, a term coined by DWM, is an asset that has future long-term opportunity in a growing industry. This would include technology, biotech, artificial intelligence, autonomous driving, alternative energy, etc. While this may seem like an exciting investment opportunity, it’s important to recognize that this type of asset will take time to blossom. This is not a short-term strategy but is part of our long-term strategy to enhance returns by investing in areas of the market that we see as having significant growth potential.

Shouldn’t I invest later on rather than now? What do you think?

It would be nice if I could predict when bumps up in asset prices for slice assets will happen, but that’s not the case. We have strong confidence on the long-term regarding these positions and their performance. However, in the short term, it’s anybody’s guess. Often times these assets move quickly and without warning. Waiting to purchase until right before they’re about to go up is not a reasonable strategy. No one has that sort of predictive power including us.

Why not just invest in established names like we have in the past? 

That’s exactly what we intend on doing. Our core strategy is based on fundamental research with companies that have significant cash flow, often times dividends, are market leaders, and have long-term prospects for success. This is not going to change, and we are not going to adjust portfolio strategies to be more speculative. 

We believe having a core investment strategy makes the most sense and we are staying committed to that philosophy. Slice assets are simply an additional overlay on our core investment strategy.

It sounds a little bit like venture capital. Am I right? 

I suppose you could look at it that way. Venture capital tends to buy companies that they think on the long term will do well and are focused on emerging industries. That’s what we’re doing with a small percentage of assets. In general, the percentage in portfolios (of the equity component) is less than 10% that we are allocating toward slice assets. We think that’s the right mix.

Am I going to get dividends from the slice assets? 

No, dividends are not a part of slice assets; it’s more about long-term capital appreciation as the economy morphs and moves in a direction that these companies will be able to capitalize on. Dividends are not the focus; it’s long-term growth.

Any other last thoughts regarding slice assets? 

Patience. Patience is what is needed when you invest in these types of assets. It’s no different than investors who invest in startup companies. It often takes a significant period of time before these assets pay off and that will be the case with the slice assets in your portfolio strategy. Keep that in mind as you review these positions.

Slice assets are part of our overall plan to capitalize on future technology innovation while at the same time being consistent with our core strategy. We believe this strategy gives us the best chance for returns on a long-term basis.
 

Disclosures: 

“Slice assets” are positions utilized in DWM investment strategies that are focused on future technology and future economic growth opportunities. The term “slice” was coined by DWM, representing a smaller percentage or slice of an overall equity portfolio strategy allocation. These assets tend to have more volatility but also provide the long-term opportunity for additional appreciation as trends emerge in the future.

Destination Wealth Management constructs portfolios and investment objectives based on asset allocation principles coupled with tactical adjustments. The firm employs research analysts with significant experience to conduct asset and economic research. DWM allocation philosophy will adjust based on market conditions and economic environment. Allocations are not static and will adjust as needed. These strategies may not be suitable for all investors. For additional information and disclosures, please refer to Adviser’s Form ADV Part 2A.