ETFs Find a Role in a Long-Term Portfolio

Albion Financial’s Jason Ware sees funds as mainstays in ‘core-satellite’ planning.

Reviewed by: Heather Bell
Edited by: Heather Bell

Jason WareWhen CNBC ranked the top U.S. advisory firms in the U.S. last month, Albion Financial Group placed third. Chief Investment Officer Jason Ware told’s Heather Bell about how the firm uses ETFs and discussed principles driving its investment approach.  What’s Albion’s investment philosophy, customer base, etc.? 

Jason Ware: Our investment philosophy is very much based on thinking and acting long term. We want to own great investments for our clients that are well diversified. And just like Buffett says, our preferred holding period is forever. That's not the case all the time. If fundamentals change, we will make changes in the portfolio. But our turnover is fairly low.  

We are a registered investment advisor. We've been in business for 40 years, starting in 1982. Fast forward 40 years later, and we have about $1.5 billion under management.  

We work with about 700 high net worth families, which amounts to about 2,000 accounts. We are very much a holistic wealth management firm. We do the investment management, and as CIO, I oversee the investment research and the portfolio design and how that's implemented in terms of our clients’ portfolios. And we do financial advice. Long or short? 

Ware: We're long only, so we're not trying to short stocks. We're not traders, and we're not trying to make guesses on where the market is going to go over the short term or what ETF is going to outperform which or which stock we should own for the next six months.  

We use individual equities; we also use ETFs both on the equity and fixed income side. We do individual bonds for clients where that makes sense—that's typically larger dollar amounts in terms of the account value. For clients that have smaller dollar amounts but want a fixed income allocation, we use fixed income ETFs. What about ETF allocations? 

Ware: On the ETF side, the turnover is even lower, because of course, part of the reason that we invest in ETFs is that inherent diversification. On the individual security side, there's more idiosyncratic risks, so we are making changes there. But again, the turnover in the portfolio is probably less than 20%. We're fairly static in terms of how we manage portfolios—we want to be long term investors.  

On the equity side of the portfolio, we use a core- satellite approach, and that's really how the ETFs get into the mix. We have ETF-only portfolios for smaller clients—like less than $250,000—typically we use ETFs solely unless the client wants individual stocks. Then we'll customize the portfolio.  

But if someone comes to us with $1 million and it’s not a balanced account—maybe they're 100% equities—and they say, “do what you do,” that account would be roughly 50% individual equities and 50% ETFs. ETFs are the core and the satellite are the individual companies that complement the core. We're fairly static in the ETF portion, although we do have some tactical tilts that we do on the ETF side as well. Are you using actively managed ETFs?  

Ware: The core piece of our equity strategy are largely [passive] ETFs that are getting us exposure to geographies and factors and market caps. Those don't change a lot over time—the sizing of the ETF in the context of the overall portfolio does change. But it's not like we're going to say suddenly, we are bearish over the next 10 years on small cap, so let's worry about the iShares Core S&P Small-Cap ETF (IJR). That's unlikely to happen.  

We do have an element of our ETF slice of the portfolio that is more tactical, like for example, we own a biotech ETF that is a deliberate expression of a bullish view on biotech as a sector, the iShares Biotechnology ETF (IBB). We owned for example, the Energy Select Sector SPDR Fund (XLE) for a while. It's like the gold standard energy ETF out there.  

We will do the active management as an overlay to the ETF as opposed to selecting ETFs that have active managers. And the reason that we prefer to do that is you typically pay more for the actively managed ETFs. But I'm not sure you're really getting the value of what you're paying. Studies have shown active management [in the ETF and mutual fund space] does not typically not provide a whole lot of value above their costs. What is your general advice to investors regarding current volatile markets? 

Ware: This probably won't surprise you, but our advice to clients in just about every market environment is “think and act long term.” Don't let 10-year money turn into 10-minute money or 10-month money. It's easy to say and difficult to execute, and it's why our clients lean on us as their advisor in their corner because we can help them think through and contextualize bear markets.  

Heather Bell is a former managing editor of She has also held editorial positions at Dow Jones Indexes and Lehman Brothers. Bell is a graduate of Dartmouth college and resides in the Denver area with her two dogs.