Cornerstone's Compass portfolio is a new twist on the old notion of a traditional balanced account. Cornerstone realizes that stocks do not always assume the same level of risk-there are in fact times when the broad market is not fairly valued relative to the underlying fundamentals. Cornerstone also understands that stocks perform better when they are undervalued. Given those facts, we believe we can add excess return and reduce risk by adjusting the allocation between stocks and bonds to reflect better where the more attractive opportunities lie.
Cornerstone shifts the asset allocation depending on the relative attractiveness of asset classes between stocks and bonds. Cornerstone maintains our proprietary Fair Value Model on a universe of 800 of the largest securities traded on US exchanges. Fair Value for each of these companies is determined by employing our Investment Model and compares our Fair Value price to the stocks current market valuation. Based on the cumulative reading of our entire investment universe, Cornerstone determines the relative attractiveness of stocks versus bonds, adjusting the weighting of the portfolio between these two asset classes in a gradual and disciplined strategy.
Cornerstone baselines a 60% weighting in stocks and a 40% weighting in bonds. We use our Concentrated Equity strategy for equity exposure, overweighting stocks when the Fair Value Model registers stocks as attractive. Cornerstone overweights bonds when stocks appear expensive. Bonds are used to add stability and income to the portfolio. We believe excess returns can be generated through stock selection and asset allocation.