After a “whole career” working at Standard and Poor’s, Richard Wolfe, co-founder and principal at Saddle River Capital Management, became a CFP in 1992 and started a financial planning firm modeling retail clients’ portfolios on endowment funds.
Back then he was using mutual funds, but was excited about exchange-traded funds. “I wanted something flexible; you didn’t have to buy a lot of securities, it wasn’t loaded with mutual funds — because I wanted something that was more transparent than mutual funds — so ETFs were just perfect for that,” he said.
The New Jersey-based Saddle River offers its portfolios to 401(k) plan sponsors through Invest n Retire, a technology company that provides recordkeeping and trading systems for defined contribution plans. Plan sponsors can choose from five core portfolios with different levels of risk.
Wolfe started Saddle River with his son, Doug, who had spent 14 years at Salomon Smith Barney trading equity securities, in 2004.
“The way we managed risk was we put more fixed income in,” Wolfe said. “So our aggressive growth [portfolio] had no fixed income in it down to the most conservative portfolio had 60% fixed income in it. It had an allocation to U.S. equities, developed markets and emerging markets. It had commodities in it, it had real estate, and it had fixed income.”
Early on, when there weren’t enough ETFs covering the fixed income market to choose from, Saddle River used closed-end funds to fill the gap, “but as ETFs developed, [now] they’re in everything — more things than we even thought about — so that made it very easy for us to not only put together an endowment-style portfolio, but to manage it the way we wanted to,” Wolfe said.
Wolfe described the research process he uses at Saddle River: “We would download on the equities all the securities on each of the indexes — large-cap, mid-cap, small-cap, that sort of thing — and we ran some fundamental analysis on those and some technical analysis and we scored each one of them.”
The portfolios are rebalanced every quarter, Wolfe said, and the team can “alternate and shift our allocations and manage our allocations depending on what is going on in the marketplace. For instance, last year emerging market commodities were getting killed, so we shifted our allocation, which was normally, say, 10% for each one to 1%.”