Frontier's Model Portfolios
Frontier Financial’s main investment solutions contain one model each for stocks (equities) and for bonds. The stock and bond models can then be combined in any amount appropriate for a client.
Frontier combines its stock and bond models into four portfolios for performance reporting and comparison purposes. The conservative portfolio contains 25% stocks and 75% bonds, the balanced portfolio holds 50% each stocks and bonds, the balanced growth portfolio is 75% stocks and 25% bonds, and the all-equity portfolio holds only the stock model. A separate Frontier Financial proprietary account is used to track each balanced portfolio’s live performance from the end of 2021.
Frontier combines its stock and bond models into four portfolios for performance reporting and comparison purposes. The conservative portfolio contains 25% stocks and 75% bonds, the balanced portfolio holds 50% each stocks and bonds, the balanced growth portfolio is 75% stocks and 25% bonds, and the all-equity portfolio holds only the stock model. A separate Frontier Financial proprietary account is used to track each balanced portfolio’s live performance from the end of 2021.
Inside the Portfolios: Types of Holdings
Frontier’s portfolios use investment vehicles such as mutual funds, exchange-traded funds (“ETFs”) and institutional pooled funds, and do not hold individual stocks or bonds directly. The portfolios contain only Series F and equivalent funds, whose embedded fees reflect only fund management costs and not client advisory fees.
Frontier makes extensive use of passively-managed (“indexed”) funds, a very low-cost method to obtain financial market exposure. Passively-managed funds almost exactly mimic their underlying benchmark index’s holdings and those holdings’ weights, and so their performance before costs very closely matches that index.
In contrast, an active fund’s manager attempts to outperform their underlying benchmark index by owning only some index holdings, and in different proportions than their index weights. Active management typically costs more than passive management.
Although Frontier’s default is to use passive investment funds, we are not doctrinaire: we will use an actively-managed fund when we think its additional investment benefits will likely outweigh its additional cost. For example, Frontier currently uses an actively-managed bond fund for about half of its bond model.
Frontier makes extensive use of passively-managed (“indexed”) funds, a very low-cost method to obtain financial market exposure. Passively-managed funds almost exactly mimic their underlying benchmark index’s holdings and those holdings’ weights, and so their performance before costs very closely matches that index.
In contrast, an active fund’s manager attempts to outperform their underlying benchmark index by owning only some index holdings, and in different proportions than their index weights. Active management typically costs more than passive management.
Although Frontier’s default is to use passive investment funds, we are not doctrinaire: we will use an actively-managed fund when we think its additional investment benefits will likely outweigh its additional cost. For example, Frontier currently uses an actively-managed bond fund for about half of its bond model.
Asset Mix and Diversification
Frontier’s investment portfolios are very broadly diversified. On a look-through basis its bond model indirectly owns the debt of more than 200 different issuers, and its stock model indirectly owns shares in more than 2,400 companies located in Canada and across the world, and in all industries.
The stock model’s geographic stock exposure is currently about 25% Canadian, 45% US and 30% international. It is neither Canada-focused nor Canada-avoiding. This provides significant protection against an unforeseen problem in any one region, such as US stocks’ “lost decade” from 2000-2009, and also allows comparability with many mutual fund portfolio programs offered throughout Canada.
The stock model’s geographic stock exposure is currently about 25% Canadian, 45% US and 30% international. It is neither Canada-focused nor Canada-avoiding. This provides significant protection against an unforeseen problem in any one region, such as US stocks’ “lost decade” from 2000-2009, and also allows comparability with many mutual fund portfolio programs offered throughout Canada.
Why One Set of Model Portfolios?
Unlike many competitors, Frontier offers only one set of model portfolios (*with a very small exception explained below). For example, it does not also offer a Canada-focus or technology-focus, etc. version of its stock model. It has two main reasons for this policy.
First, one set of model portfolios creates consistent performance for all clients.
Second, Frontier puts its best ideas into just that one set of portfolios and then lives by those results. That does not guarantee the portfolios’ performance, but it guarantees that our efforts are focused on only those portfolios. We are expected to deliver expertise, not a multitude of choices that push the important investment decisions back onto the client.
*The small exception is that the stock and bond models used by advisors at Wellington-Altus differ slightly from Frontier’s main models. However, the Wellington models’ holdings and weights are highly similar to (and usually the same as) those in Frontier’s main models, and so their investment performance over four years is virtually identical.
First, one set of model portfolios creates consistent performance for all clients.
Second, Frontier puts its best ideas into just that one set of portfolios and then lives by those results. That does not guarantee the portfolios’ performance, but it guarantees that our efforts are focused on only those portfolios. We are expected to deliver expertise, not a multitude of choices that push the important investment decisions back onto the client.
*The small exception is that the stock and bond models used by advisors at Wellington-Altus differ slightly from Frontier’s main models. However, the Wellington models’ holdings and weights are highly similar to (and usually the same as) those in Frontier’s main models, and so their investment performance over four years is virtually identical.
