“An investment in knowledge pays the best interest.”

The title of this post is a quote by Benjamin Franklin, and at Johnson Financial Group we agree wholeheartedly with the Founding Father.

Research is a critical piece of our investment process and philosophy. Our research effort is the driver for change in each of the three components of our investment process: Asset Allocation, Capital Allocation and Manager Selection.

This post offers a brief snapshot of how our research embraces both bottom-up and top-down approaches throughout all three of those components. Our research effort is ever evolving and never ending—just like the markets themselves. We actively listen to economists, strategists, technicians, portfolio managers, analysts, peers and other industry experts.

While a listening mindset unites the methodologies, other characteristics differentiate them. Those differences are important, because it’s the combination of bottom-up and top-down viewpoints that helps us ensure a broad view of the landscape, enabling us to recognize themes and trends and acknowledging conflicting viewpoints.

Bottom Up

Looking from the bottom up, we listen to what our asset managers are seeing within their respective markets. Their in-depth analysis is a “bottom up” perspective because it deals principally with the activity and prospects of specific companies and industries.

Thanks to our “open architecture” approach—in which we may hire any manager that passes our discerning selection criteria—we are tuned in to a wide range of manager viewpoints. These range from large industry players such as T. Rowe Price, Vanguard and BlackRock to more niche managers such as Baillie Gifford and Nuance Investments.

Last year alone, our Investment Research Team had over 700 meetings with these and other asset managers. These meetings not only ensure we do our homework, they also provide occasions for our team to ask questions: “Where are you seeing opportunity given this market dislocation,” “What happens to technology companies if there is increased regulation due to antitrust or privacy concerns,” or even “What are your thoughts on TikTok?” The dialogue is continuous, and the questions are endless. By interviewing and studying these asset managers, we can see themes unfold across industries and markets.

Top Down

From the top down, we read daily pieces from our third-party research providers on industry news, the market environment and current economic conditions. In contrast to most of our managers, these providers focus on a “top down” perspective in the sense that they study macroeconomic themes and market trends.

We partner with several firms such as Cornerstone Macro, Capital Economics and J.P. Morgan. Our team gathers and digests their often differing insights to form our own top-down view of the markets and the economy.

To get there, we discuss and debate these views and opinions in detail during various committee meetings. Broad examples include how the coronavirus pandemic and the upcoming election may affect market dynamics. More specific examples include the recent momentum in growth stocks, monetary and fiscal stimulus in the Eurozone, housing data in the United States, and the risk of inflation across the globe.

Putting It Together

We put a heavy emphasis on research—in how we dedicate our time and in the financial investments we make in third-party perspectives—because without in-depth research, we could not confidently make asset and capital allocation decisions.

And the most balanced and thoughtful decisions, in our view, always take into account the complementary viewpoints offered by bottom-up and top-down perspectives. Uniting them both throughout our process, we can arrive at confident, informed decisions about our clients’ portfolios.

ABOUT THE AUTHOR

Kelsey Ellsworth

AVP Wealth Portfolio Manager | Johnson Financial Group

As Assistant Vice President, Wealth Portfolio Manager, Kelsey works with clients to achieve their unique goals and objectives.