Investment Process

The Litman Gregory Investment Approach


The Strategic Allocation

Our process begins with the construction of strategic allocations for various risk levels. These allocations comprise the mix of assets we believe has the best chance to generate a good long-term return while also considering an investor’s short-term risk tolerance. The strategic allocations represent baseline, long-term target allocations to broad asset classes and are determined through portfolio optimization, extensive scenario analysis, and our research team’s qualitative forward-looking assessment.

Tactical Allocation Overlay

We believe that markets are usually, but not always, efficient. We conduct intensive, fundamental asset class valuation analysis designed to identify any mispricing opportunities. We only deviate from each portfolio’s strategic allocation if there is a compelling opportunity to increase return and/or reduce risk. We are not confident in our ability (or anyone’s) to consistently assess short-term psychological influences or “time” markets, but we are confident that over longer periods, valuations and fundamentals converge. For this reason, we are comfortable using a five-year time horizon when making tactical portfolio shifts. We believe five years is long enough that underlying investment fundamentals, rather than short-term market sentiment, will be rewarded and thus drive returns.

Manager Selection

Litman Gregory has been evaluating and investing with active investment managers for more than three decades. Despite our success over the long term with an active approach, we also understand the benefits of index investing. We have been assessing index products and managing index-oriented portfolios for over 15 years and appreciate that an index-focused portfolio can be a better approach for some investors. For this reason, we provide active and index-based portfolio strategy options for our clients.

The Key Elements of Our Approach

  • Long-Term Perspective. Maintaining a long-term orientation ensures a disciplined analysis of asset prices and fundamentals guides our investing decisions. At the same time, it gives us the confidence to take advantage of temporarily mispriced investments and the patience to wait to realize returns.
  • Global Mindset. Investing across multiple geographic regions expands our ability to uncover attractive opportunities and affords greater return potential with reduced downside risk.
  • High-Caliber Research. Our in-house investment research team draws on a deep well of industry expertise and a vast network to guide our investing decisions.
  • Discipline and Conviction. We set the bar high in evaluating investment opportunities, undertaking rigorous analysis and vetting, then acting with conviction on those we find compelling.
  • Superior Investment Selection. Widely known for our skill in identifying active managers, we also recognize the advantages of index-based vehicles for specific client needs. Tapping managers from outside firms via mutual funds, ETFs, and private investment vehicles allows our clients access to a variety of asset classes and strategies, while ensuring we benefit from a high level of expertise.

Litman Gregory's Investment Process


Our Strategies

Active Investment Strategies

Our due diligence process for managers and funds is grounded in our conviction, supported by extensive research, that skilled managers can and do deliver superior performance over the long term. An essential part of the value we provide is the multiple decades of experience we bring to bear in assessing and selecting exceptionally skilled managers. We engage in exhaustive quantitative and qualitative research aimed at uncovering those select managers with an identifiable and sustainable investing edge. Here are just a few critical elements we look for in our due diligence:

  • A clearly defined and well-articulated investment process supported by evidence of successful implementation over time
  • A manager or team that demonstrates a high level of integrity, intellectual honesty, and a passion for investing
  • Supportive team dynamics and a culture that insulates key investment personnel from noninvestment-related responsibilities

This rigorous process yields a select list of managers. For those we decide to invest with, our analysis is not a once-and-done exercise. We continue to closely monitor fund performance and investment decisions through regular updates with our managers, aimed at making sure they remain committed to their investment process and disciplined in its execution.

Passive Investment Strategies

As it comes to researching passive investment strategies such as index funds and exchange-traded funds (ETFs), we believe there are many important elements to selecting the correct vehicle for our portfolios. Within each asset class, there are only a small number of ETFs or index funds that we believe are suitable for investment, given asset size, liquidity, and expenses. From that narrowed list, our team then filters by quality of sponsor, index construction and methodology, tracking error, and other implicit costs to owning the investment strategy.