Interlake Capital Management offers a rigorous, active discipline through Interlake Alpha, and a strategic, tax-efficient discipline through Interlake Allocation. Interlake has designed these programs to complement one another, but each can be highly effective as a stand-alone solution.

Interlake Alpha Portfolios

Interlake Allocation Portfolios

Interlake’s Intelligent Rebalancing Process



Interlake Alpha Portfolio
If you look at a chart of the S&P 500 index since mid-1999, you’ll see that the broad U.S. stock market has made essentially no progress in eight years. If the averages continue this plateau-like pattern for the foreseeable future (as we think they will), and if market returns alone cannot meet investors’ needs and expectations, active management will be an indispensable part of a complete investment program.

Given the serious limitations of conventional approaches to active management, and because we believe investors should know what they’re getting and get what they pay for, Interlake offers a distinctive “true alpha” approach.

Suffering from asset bloat, excessive diversification, style constraints, lack of agility, and high expenses, most mutual funds have little chance of outperforming their benchmark indices. To generate excess return (or “alpha”) on a consistent basis, skilled money managers must assemble concentrated, eclectic portfolios featuring their best investment ideas.

That’s exactly what the Interlake Alpha Portfolio delivers. With 12 to 20 positions (in most market environments) and an absolute-return orientation, Interlake’s Alpha discipline can help investors realize their financial objectives in spite of stiff headwinds for the broad market averages.

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Interlake Allocation Portfolios
Grounded in Nobel Prize-winning research, the Interlake Allocation Portfolios offer inexpensive, tax-efficient, exposure to a full range of global asset classes. This discipline has three primary components: (1) The management of overall risk through the weighting of asset classes; (2) the selection of optimal exchange-traded funds; and (3) Interlake’s Intelligent Rebalancing system to keep each portfolio in equilibrium.

In addition to their outstanding design and implementation, our Allocation Portfolios do something very, very important: They protect you against fear and greed. When a roaring bull market tempts euphoric investors to chase momentum in a single asset class, or when a nasty bear market coaxes them to simply bail out in despair, emotional decision-making can inflict permanent damage on portfolio returns.

By helping investors participate intelligently in more than a dozen major asset classes, the Interlake Allocation program offers an institutional-caliber complement to our Alpha discipline.

A short note on Exchange-Traded Funds: The category is expanding rapidly, and, as usual when there’s money to be made in a product line, many new ETFs leave much to be desired: too specialized, too expensive, too trendy, and too late. But there’s also some intelligent innovation amid all the excess, and we monitor new entrants to the ETF marketplace in order to position our clients on the sensible middle ground between the cutting-edge and the tried-and-true.

Interlake offers Allocation Portfolios in five categories: Aggressive Growth, Growth, Growth and Income, Income, and Capital Preservation.

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Interlake’s Intelligent Rebalancing Process
Interlake rebalances clients’ Allocation Portfolios intelligently, when position weights exceed pre-established tolerance levels, not arbitrarily with the passage of time. To understand the benefits of the Interlake rebalancing program, consider the shortcomings of the calendar-driven alternative.

  • Calendar-driven rebalancing is fundamentally illogical. The inescapable problem with calendar rebalancing is that it’s unrelated to actual developments in the capital markets. Many financial journalists and professionals recommend annual rebalancing in order to minimize the role of emotion. That’s a sensible objective, as emotional decision-making tends to impair returns. But why should investors replace one set of faulty practices (assuming too much risk by chasing momentum, or too little by capitulating in bear markets) with another (calendar rebalancing)? The answer, of course, is that they shouldn’t. Fortunately, Interlake offers a smart, pragmatic alternative. By establishing and enforcing tolerance levels for departures from benchmark portfolio weights, Interlake keeps client assets in equilibrium between unnecessary and unhelpful rebalancing on the one hand and portfolio drift on the other.

  • Calendar-driven rebalancing can produce unnecessary tax liabilities. When not linked to a careful program of tax-loss harvesting, calendar rebalancing can create unwanted tax implications. As part of our rebalancing program, Interlake can help clients avoid unnecessary tax bills and maintain exposure to key asset classes. Paying taxes is fine as long as tax liabilities are incurred for good reason. The point of Intelligent Rebalancing is not to avoid taxes at all costs, but to ensure that the benefits of any portfolio changes justify whatever tax implications those changes create.

  • Calendar-driven rebalancing can impair returns. By limiting the contributions of high-performing asset classes, calendar-driven rebalancing may not allow winning positions to boost overall portfolio returns. The single most compelling reason to diversify across asset classes is that no one knows—and no one should pretend to know—which asset classes will outperform in the near future. By participating in multiple asset classes in a risk-appropriate way, investors can ensure that they will benefit from outperformance wherever it materializes. But if last year’s underperformer may be this year’s outperformer, last year’s outperformer just might outperform again! In the face of so much uncertainty, Interlake operates on the middle ground between mindlessly trimming winning positions every year and simply letting the market distort portfolio positions and bring those positions back into balance the hard way—through nasty corrections.

  • Calendar-driven rebalancing can generate excessive trading. In some corners of the financial services marketplace one can find recommendations that investors rebalance as often as quarterly. That’s just silly. Recommendations of semiannual or annual rebalancing are more common and more reasonable, but still not optimal. As with tax liabilities, investors should incur commissions and create taxable events only when the benefits of trading justify those costs. Unlike calendar-driven rebalancing, Interlake’s intelligent approach begins with a calculation of the likely benefits of risk reduction, return enhancement, and tax management. With a sense of potential advantages in hand, the cost-benefit analysis of rebalancing activity is straightforward.

The objective of Interlake’s Intelligent Rebalancing program is to manage risk and, in the long run, enhance return by selling a marginal portion of a given asset class when it’s priced relatively high and buying a little more when it’s priced relatively low. The logic is straightforward, but implementation can be challenging in both technical and emotional terms. Interlake’s intelligent approach to rebalancing provides an excellent mix of risk- and tax-management.

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Because we believe investors should
know what they’re getting and get what
they pay for, Interlake offers a distinctive
‘true alpha’ approach.

By helping investors participate intelligently
in a broad range of important asset classes,
the Interlake Allocation program offers an institutional-caliber complement to our
Alpha discipline.

Interlake keeps client assets in
equilibrium between unnecessary and
unhelpful rebalancing on the one hand
and portfolio drift on the other.