Investment Process

Equities
Individual Security Selection Process - Large Cap Core

First American Trust emphasizes a team approach to selecting securities for client accounts. We utilize a combination of a top-down (macro-economic) and bottom-up (stock specific) processes to select securities. While some investment firms utilize computer screens to narrow the universe of securities, we believe in thoroughly evaluating each of the approximate 600 companies in our universe of U.S. stocks with market capitalizations in excess of $4 billion. We group the universe of securities into sectors which are covered by one of our five analysts.

Stock Selection Process




Analysis of Top-Down Macroeconomic Factors




Portfolio Construction Process - Large Cap Core

The portfolio construction process draws upon the experience of the entire investment team and considers stock specific opportunities, sector trends and themes, as well as current and expected macroeconomic conditions. Risk, both absolute and relative (to the S&P 500) is a key ingredient in this process. As a result, the weight of a particular security in the benchmark is considered in the security selection process. The Large Cap Core construction process, however, is only part of the overall Client Review and Asset Allocation Process.

Manager Selection Process - Mid Cap, Small Cap & International

In order to obtain exposure to Mid Cap, Small Cap and International Securities for our clients, we believe that this expertise is best provided by outside managers carefully selected by the Investment Team. Each category of Mid, Small and International is covered by an analyst responsible for presenting the best managers to the Investment Team. We are currently utilizing mutual fund managers for this exposure and are giving consideration to adding separate account managers in the near future.  

Criteria for selecting managers includes the following:

Consistency of outperformance relative to their respective benchmark
Consistency of Style
Manager tenure
Fund size and reputation
Acceptable risk characteristics

• Fees & Expenses 
  
  Proven Track Record

   

  Our individually managed equity securities composite has outperformed the benchmark 9 of the last 11 years*.
  
  And...
  
  Outperformed 83% of Large Cap Managers in the country over the past 11 years**.
  
  *Gross of fee returns.
  **Net of fee returns based on comparison of Large Cap Blend managers in the Morningstar database.
  Past performance is no guarantee of future performance. 

Fixed Income Management

First American Trust's Fixed Income Philosophy involves active participation in the credit markets guided by the established risk tolerance and investment objectives of our clients, paying particular attention to safety, liquidity, yield and tax concerns.

Risk management is the key element in portfolio design, issue selection and on-going portfolio monitoring. Our comprehensive research and risk management processes seek to identify, measure and control risk consistent with prudent portfolio management. These risks include, but are not necessarily limited to: market risk, credit risk, and liquidity risk. We manage these risks by employing disciplined quantitative yield curve analysis, interest rate anticipation and sector/credit analysis. Further, the Fixed Income Group oversees internal investment procedures consisting of specific credit, maturity and security guidelines striving to ensure suitable risk parameters are in place.

First American Trust's Fixed Income Process is driven by "value added" total return and income oriented objectives. The total return objective's performance is gauged against a stated benchmark and consists of both top-down and bottom-up analysis.

Our top-down methodology analyzes the macro-economic conditions affecting the business cycle, portfolio duration and volatility, sector performance and yield curve placement. The bottom-up methodology analyzes issuer credit and selection as well as cost-effective trading. Cost-effective trading is predicated upon a fiduciary basis where our goal is to evaluate overall market yield levels and shop multiple pricing sources for the purchase or sale of securities. This process enables us to selectively execute trades at the most attractive market price for our clients.

While still utilizing market analysis as previously discussed, portfolio strategy for clients whose investment goals are more income oriented is designed to manage market price volatility and predictable cash flows. Using short and/or intermediate maturity, high quality issues for diversified portfolio construction normally provides for both of these objectives. While performance may be viewed against a benchmark, consistently meeting our client's income needs is the primary focus.

While we discourage extensive applications of interest rate forecasting for income oriented portfolios, quantitative top-down and bottom-up approaches are used to the extent provided in the client's approved investment guidelines. In other words, for the income oriented client, we believe lengthening or shortening portfolio maturities should be driven first by our client's investment objectives and then seeking to strike a balance within our fixed income strategy.

The following are fixed income portfolio management objectives offered by First American Trust. All three objectives may be designed for clients desiring taxable or tax-exempt returns.

1. Cash Management - based on an average portfolio maturity of one year or less and an overall credit quality of AAA.

2. Short Duration - based on an average portfolio maturity from one to three years and an overall credit quality of AA.

3. Intermediate Duration - based on an average portfolio maturity from three to five years and an overall credit quality of AA to A depending on strategic sector weighting.