By Elaine Misonzhnik, WealthManagement.com, featuring Brian Spinelli, CFP®, AIF®, Co-Chief Investment Officer
Long Beach, Calif.-based RIA firm Halbert Hargrove has existed since the Great Depression and has seen every kind of market cycle since its founding in 1933. Its focus, according to co-CIO Brian Spinelli, is to serve clients through their various life phases, building portfolios that best suit their current needs.
With an AUM of approximately $3.6 billion, the firm has a wide-ranging client base. Approximately one-third of its clients have a net worth of $5 million or more, another third are in the $2.2 million and above bucket, and the rest are in the accredited investor category, which Halbert Hargrove defines as having a net worth of $1 million and above. As such, the firm’s clients have somewhat of a higher tolerance for private market investments and illiquidity, which is reflected in Halbert Hargrove’s investment strategy.
WealthManagement.com recently spoke with Spinelli about which assets the firm includes in its model portfolios, how it evaluates asset managers and where it sees the best opportunities for outsized returns in the year ahead.
This Q&A has been edited for length, style and clarity.
WealthManagement.com: Can you tell me what’s in your model portfolio right now, asset class by asset class?
Brian Spinelli: The way that we build portfolios is going to start based on where our client is at within their investing life phase. While we do have guidelines or models if you will, there’s not one set portfolio that everybody uses, it’s going to have some deviations around it.
I’ll give you our philosophy on public equities. We tend to be more passive in the sense that with things like U.S. large-caps, we use lower-cost passive alternatives. As we tilt into other things, like international and emerging markets in the public space, there might be some active use there. But it covers broadly more passive, more index-oriented public equities.
Then, breaking it down, within stocks and equity ownership, we do have a private equity allocation in portfolios where we can take on that illiquidity. That really is going to be more for accredited or qualified client investors because there are restrictions on getting into that type of investment. But we do substitute part of our equity portfolio for private markets if it can fit into a client’s portfolio. That kind of covers the equity ownership side.
Fixed income, the publicly traded side of fixed income, we are 100% active management, predominantly taking at least at this point more credit risk and lower duration than an index version of the Barclay’s aggregate [Barclay’s U.S. Aggregate Bond Index]. Most clients, if you are going to have some level of fixed income in the portfolio, you are going to have exposure in some way to more public markets there. Now, as clients become more adaptable to illiquidity and to looking at alternatives, we do substitute some of the fixed income in the portfolio to utilize things like private real estate just for an alternative income stream. We also do private credit in there as well. We are not 100% illiquid across the fixed income side, but we use those as complements to the traditional side of the portfolio.
In another area that just doesn’t fit any of those asset classes, we are using some forms of reinsurance and things like that that are going to be hybrid-type assets between a stock and a bond. They are really not either of those, but the risks are higher there, and the income is much higher and get compensated for that risk over time.
WM: How often do you tend to change your allocations?
BS: There are certain years when there is a lot of change in the markets, not just the stock market, but there’s change in the fixed income market, there’s change in the alternative areas of the market. I would say 2020—that calendar year because it had so much disruption with interest rates and the pandemic stopping the economy—we probably had 20% of our portfolio change in that single year.
And then, for the next two years, we were in the low single digits, probably one to two changes per year. For the last two years, we’ve had, on average, one to two big asset class changes a year. There just hasn’t been too much disruption. We’ve been doing more adding and rebalancing in these environments, especially as equities have run up. But I wouldn’t say there were some large-scale manager terminations or anything like that within the last year. It will shift. We are constantly looking at things. If the environment is not offering us an opportunity to do this, we are not just going to make a change to make a change.
Plus, the other critical issue that we all have to deal with is taxable investors. Any time you make a big change in a taxable account, you are most likely selling something at a gain that a client will have to pay a tax on. We have to be very mindful of that.
