The Headlands Group

The Headlands Group Helps Investors Embrace and Benefit From Market Uncertainty

As an investor, you will take risk. You can go conservative and take  
 the chance that inflation will outrun your gains. Or you can be bold and position yourself for potentially higher rewards.

As Terry O’Neill and Kal Salama of The Headlands Group explain, embracing risk may be your best bet. The firm, which serves high-net-worth clients, has an uncommon but effective approach to building wealth: Use and manage risk.

Recent equity market turmoil has prompted people to seek safe investments. But O’Neill and Salama say investors need risk in their portfolios. The advisors talk candidly with clients about how the disappearance of pensions is forcing people to invest for their own retirements, and how longer lifespans and rising health care costs are sapping accounts. “Many investors don’t realize the cost of trying to play it safe,” says O’Neill. “They lose potential portfolio performance over time and face the greater danger of a wealth shortfall.”

O’Neill, president, and Salama, chief investment officer, both have extensive investment experience. They share a belief that the greatest threat to an investment portfolio’s success is human nature – the impulse to react rashly to downturns.

A Global Approach
Market turbulence often derails investors. So O’Neill and Salama educate clients, taking emotion out of the equation, clearing the way for discipline, rational thought and potentially higher returns. Some of those returns, in both equities and bonds, are in the U.S., and some are international. “We went global in 1988 because it was natural; it made sense that not all investment opportunities were in the U.S.,” says O’Neill.

The Headlands Group uses techniques designed to provide the highest probability of long-term success. O’Neill and Salama ask clients to come along for the ride – a sometimes bumpy one. “We’re in the business of getting clients comfortable with near-term uncertainty on the way to growing their wealth. Over time, long-term returns come from compensation for near-term uncertainty,” Salama says. “The two go hand in hand.”

This calls for building portfolios that perform at a sophisticated level. “Without the client as a partner allowing us to do the work on their behalf, it’s not going to happen,” says O’Neill.

Opportunity in Market Turbulence
The firm invests at the country level rather than the company level. To manage risk and potentially benefit from turbulent markets, The Headlands Group actively employs valuation and rebalancing tools.

The team tilts the portfolio toward countries/regions priced below their true values and away from those priced above theirs. The portfolio earns additional returns when prices move to values.  Recent pessimism in Europe, for example, has made the region a good source of attractive values.

Built-in triggers alert the team when to rebalance profits out of holdings that have risen – before the market takes them back down – and reposition them into those more likely to rise. Spain, a bargain when Salama added to it in June, has since bounced back handsomely. “We capture incremental gains and keep them for clients,” O’Neill says.

“We want the portfolio – not the client – to respond to the markets. Our goal for clients is to have them live their lives, confident their portfolio is on a successful investment path.”

 


100 Larkspur Landing Circle, Suite 202 | Larkspur, CA 94939
415-464-9144 | www.headlandsgroup.com