September 21, 2019

It Takes a Village to Raise a Portfolio Return

The Green Mountains, the location of Ted Cronin's unique family office

George Soros recently turned his hedge fund into a family office. One reason he did is because family offices are often more free to run their businesses with a greater degree of freedom. Less oversight means more discretion in investment decisions.

Barron’s Alexander Eule asks Ted Cronin for his best advice for families heading into the near-term economic uncertainty. Cronin partially attributes his independence and clear-headed thinking to his rural location. His performance has been noticed – Barron’s ranked his firm at #22 in its top 100 independent advisors. Perhaps it takes a village to raise a portfolio return.

Ted Cronin’s firm, is run from a Cape Cod-style house, nestled in the lush Green Mountains of Vermont, a world away from the concrete canyons of Wall Street.

Manchester Capital Management, based in Manchester, VT manages $2 billion for 45 families.

“As a rule, we are contrarian investors,” Cronin says. “It’s the only way to match or exceed benchmarks.” He thinks dividend stocks are overpriced and has little interest in the latest social-media stock.

“The very best portfolio can add low-single-digit percentage returns above the market, but enormous amounts of money can be saved or preserved through proper estate planning and tax structures.”

Cronin also warns families about the four factors that can do the worst damage to wealth: divorce, estate taxes, negligence, and excess consumption.

The firm allocates about 35% of its assets to alternative strategies, including real estate, timber, agriculture, and hedge funds.

The firm has taken a shine to emerging markets, given price-to-earnings multiples that are cheaper than those in the U.S. And while Cronin is wary of China’s growing pains, he notes that Korea, Thailand, Malaysia, and Mexico all offer the kind of growth that is no longer available in the developed world.

On the fixed-income side, Cronin favors municipal bonds and, for a little extra income, safer types of high-yield bonds.

With an eye toward inflation, he is finding opportunity in hard assets, including international timber and agricultural assets. While Manchester tends to invest in these through partnerships abroad, Cronin says any investor can get a lot of the exposure with the iShares S&P Global Timber & Forestry Index Fund, the Guggenheim Timber exchange-traded fund and Market Vectors Agribusiness.

The real-estate team’s “mandate is to buy a mixed-used building of historic qualities in a very secure demographic…a place like San Francisco or Seattle or Denver,” he says.

Cronin still considers its family-office work to be Manchester’s core competency—it handles a host of tax, wealth-transfer and property issues on top of investment management.

Many argue in favor of passive investment – buying index funds that mirror a composite’s return instead of trying to beat it. After all, most managers indeed don’t beat the market’s return. Even if they do, fees eat away at returns.

Cronin emphasizes why active management still adds value. Wealthy families need sound tax advice and risk mitigation. Capital preservation is the emphasis. Manchester Capital Management’s clients seem to like the firm’s out-of-the-box style. It takes a village to raise a portfolio return – and maybe a little country air.

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