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Private Wealth Management

Investment Policy Statement

Investment Policy Statements (IPS) have traditionally been available only at institutional level portfolio management. Q3 Capital Management has been utilizing the IPS with our retirement plan clients for over ten years, so it was a natural transition when we made this valuable process available to our individual private clients.

Creating a written IPS is an important step in meeting the individual needs of our private clients and helping them make the most of their investments. This can be beneficial in several ways:

  • It encourages sound decision-making and timely action,
  • A documented framework for conducting a prudent review,
  • Objective process for selection of investment options.
  • It is generally considered to be a fiduciary best practice.

However, our fiduciary duty as a Prudent Investor does not end with the selection of investments. We continually monitor the performance of the investment options to ensure that they continue to meet your needs, as outlined by the Investment Policy Statement.

A quarterly review is designed to ensure that we are acting as stewards of your investments:

  • By determining whether each investment of the portfolio is meeting the goals outlined in the IPS.
  • By documenting the analysis, and any decisions or actions arising as a result of the review.
  • By facilitating regular formal reviews and timely decision making on a quarterly basis.

Even with the most rigorous initial fund manager selection process, a portfolio of investments will change over time. The review can help highlight important information regarding a fund manager's risk level, portfolio management, and other characteristics.

The Investment Policy Statement criteria can be grouped into the following categories:

  • Investment Fund Characteristics1
  • Investment Style2
  • Performance3
  • Risk Adjusted Return4
  • Volatility5
  • Fund Expenses6
  • Turnover7

Passive Fund Criteria: Each investment fund is also compared to benchmark-based criteria (e.g. Up/Down Capture), so the fund’s prospectus benchmark is used for comparison. This benchmark is included on the Fund Criteria and Performance Report Sections.

Overall Investment Policy Score: The IPS allows for up to 12 criteria. Each quarter, the portfolio is objectively scored based on whether a fund met the target number of criteria, as determined by the IPS.

  1. Includes Manager Tenure and Total Net Assets
  2. The Investment Style criteria include R-Squared (Std.) - percentage of manager’s movements that can be explained by movements in its benchmark index over time; R-Squared (Best Fit) - percentage of manager’s movements that can be explained by movements in its best fit benchmark index over time.
  3. Fund performance is available for 1, 3, 5 and/or 10 years. Each of these return timeframes is compared against the average peer returns and a benchmark fund in the Fund Criteria Report.
  4. The Risk Adjusted Performance measure criteria include the Sharpe Ratio, the Alpha or R-Squared.
  5. This criterion includes Beta, Standard deviation, or Tracking Error criteria to measure fund volatility.
  6. The expense ratio is the percentage of fund assets paid for operating expenses and management fees.
  7. This measurement evaluates a fund’s trading activity by its Turnover Ratio. A low Turnover Ratio (20%-30%) indicates a smaller amount of securities in the portfolio have been traded, while a higher Turnover Ratio (100% and up) indicates rapid buying and selling of securities. This figure is obtained from the fund’s annual report and is not calculated by Morningstar.