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Portfolio > Portfolio Construction

European Banking Experience Pays Off for Corbeau and His Clients

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Jim Corbeau has been using foreign investments as part of his clients’ portfolios ever since he founded Maas Capital Advisors, LLC in Portland, Ore. in 2000. He has a different outlook on the makeup of a portfolio than most of his peers, perhaps because his background gave him a different view of the investing world.

Corbeau didn’t begin his career in the financial arena as an advisor in the U.S. Instead, for more than 10 years he was an investment banker in Europe, where he worked with companies and with high-net-worth investors. The experience made him, he says, “acutely aware that there was a world outside the U.S.”

When he left Europe behind to start his own RIA firm at home, he said, “I didn’t have the bias that if it wasn’t in the S&P 500, it didn’t exist. The fact that I wasn’t in the U.S. during the ’90s and the dotcom and tech run-up probably gave me a different perspective. From day one, we used 70% U.S. and 30% international [in portfolios]. It should have been tilted more toward foreign, but back then even that was fairly exotic,” he said.

What was exotic in 2000 would become even more so in 2005, when “we advised our clients that we would be changing the mix from 70/30 to 50% U.S. and 50% international, to reflect the fact that the U.S. was a smaller piece of a growing global pie,” Corbeau said. “At the same time, for larger client portfolios we introduced an exposure to emerging markets equities, as a carve-out of the overall 50% international,” he said.

But Corbeau wasn’t finished yet with adjusting client portfolios to reflect a thoroughly global approach. “Later, we introduced international real estate as another carve-out. We also use international bonds as a part of our fixed income allocation,” he said.

How did clients react to such a radical move? Corbeau said they took the changes well. “I think that from our perspective, and just from our experience, clients tend to say, ‘If that’s what you think is best, that’s what we pay you for.’” While most are content to leave it in the firm’s hands, Corbeau said that “there are some who by virtue of their own affinity for investing get a little more involved—Japan or emerging markets, [for instance].”

And despite the somewhat radical, for the time, change to client holdings, he said that clients aren’t constantly being advised of tweaks here and adjustments there. “We tend to make relatively few changes to portfolios over time, so it’s not like they’re bombarded by market timing.”

However, smaller clients had to wait a bit for some of Corbeau’s international portfolio refinements. “Up until a year or so ago, maybe a little longer, as an independent advisor, our clients were paying transaction costs every time we bought or sold,” he said, adding that emerging markets holdings were not ordinarily a part of smaller portfolios.

“I didn’t want the benefits of emerging markets to get outweighed by transaction costs,” said Corbeau. “I didn’t want to invest a few thousands, or tens of thousands, only to have transaction costs cancel out [the benefits.]” Now, however, ETF providers have filled the gap, “so we have a number of asset classes for basically zero cost—so now even the smallest portfolios can get international real estate, emerging markets, and so on. That’s been really helpful.”

Asked about which regions or countries his firm favors, Corbeau said, “We’ve always had the approach that trying to predict what’s going to do well and what isn’t is sort of a losing battle.” Also, since emerging markets “tend to be really volatile,” such holdings might be a more appropriate investment for an institutional client such as a pension fund “that can probably tolerate a higher exposure than a little old lady can.” A review of Sharpe ratios and asset classes “might suggest percentages in certain asset classes [that are] intolerable for retail investors, [so] we strike a balance of good diversification but not so volatile that they bail out on the strategy in the process,” he said.

When it comes to types of investments rather than countries, however, Corbeau is more specific. ETFs and mutual funds from Dimensional Fund Advisors (DFA) make up the bulk of client equity holdings. “On the fixed income side, we use funds and ETFs from PIMCO and from DFA, and also from iShares,” he said. BlackRock’s iShares provides exposure to foreign real estate, through its global real estate ETF (ticker IFGL), as does DFA through its international real estate fund (ticker DFITX). The firm looks for a research-based approach rather than an active management approach to select investments.


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