Your Guide to Private Money Managers - Money Manager Review
Money Manager Review 
For a Free Tour of our Manager Performance Rankings
Call 1-415-386-7111
Follow Us Facebook Twitter

    Guest Interview:

   MPI Wealth Management LLC

    15 Salt Creek Lane Suite 404
    Hinsdale,IL 60521

    Telephone: 630-325-6900
    Fax: 630-325-8167


    Interview Quarter: 1Q2014

 Bradley C. Smith

 Sr. Vice President & Portfolio Manager

  Brad, tell us about MPIís overall investment philosophy.  
  First and foremost we are a conservative, high quality manager. We donít invest in structured products or derivatives. Our philosophy is to invest in quality companies and take a long term approach. We do this by utilizing a multiple asset class strategy that uses a combination of U.S. stocks, global equities and fixed income securities. It is not unusual that individual portfolios are customized to meet a clientís personalized investment profile. We strongly believe that consistent, reliable performance is the key to achieving the long term investment goals of our clients and we see preservation of capital as the primary directive.  
  How long has MPI been around and who founded the firm?  
  MPI was founded in 1986 by my Partner and CEO David Pequet. We are currently celebrating our 28th year in business. Iíve been with the firm since 1992. As you can imagine, in that time weíve seen both good markets and bad. Those experiences have provided us with a valuable perspective on the current market environment and where things go from here.  
  We have talked in the past about MPIís expertise as a fixed income manager. What we havenít talked about are the two equity composites you manage for clients. Begin by telling us about your total return equity style portfolio.  
  MPIís Total Return Equity is a globally diversified portfolio that strives to provide our clients with a competitive return at a lower correlation to the S&P 500 than your typical retail mutual fund approach. As you referenced, we have a long term fixed income track record that provides us with a unique lens through which we view the global economies and markets. With our total return approach we leverage that fixed income experience and research and apply it to a highly diversified equity strategy. We may be a bit biased but we think there is a great deal of institutional level information being provided by the fixed income markets that is very pertinent to the future direction of the equity markets.  
  You describe your total equity style portfolio as a highly diversified strategy. Please explain.  
  We have multiple levels of diversification beginning with geographical diversification and filtering on down to asset class and ultimately industry sector diversification. We begin our diversification by overlaying our macro research which identifies global markets and sectors that represent strong opportunities for growth and or value. Then we begin filling those buckets if you will with securities that we feel offer the best risk/return profile over the next 12 to 24 months. Our typical portfolio usually ends up with approximately a 25% to 30% weighting in international markets and covers 8 to 10 industry groups. The goal is to provide strong returns without the undue risk of an over concentration in any one stock, sector or geographic region.  
  Tell us about your dividend equity strategy.  
  MPIís Dividend Equity portfolio is a large cap focused strategy that invests in high quality companies that have a proven track record of growing their dividends. We screen companies based on projected dividend yield, historic dividend increases and current valuation. The portfolio has been able to provide above market yields while at the same time allowing investors to participate in the stock marketís recent price strength. We feel this is a great way for investors to capture strong income yields in this low interest rate environment and still be able to participate in the global economic recovery. The price appreciation isnít quite like a high beta growth fund, but we feel the lower volatility and stable income is much more desirable for our clientsí goals and objectives, not to mention for their peace of mind.  
  How you go about picking your blue-chip dividend stocks?  
  As I mentioned we screen our universe of large cap stocks based on projected 12 month dividend yield and sort that from highest to lowest. Then we overlay additional screens that look at 3 and 5 year dividend growth, and earnings and revenue growth. The remaining stocks are then ranked on valuation. Finally we overlay our macro outlook and begin constructing the portfolio with issues that pass the screens and fit our global macro research. The results have been quite successful, providing solid returns and risk levels well below our peers.  
  What are the typical clients for each of your strategies?  
  Our typical clients are high net worth individuals, small to midsize corporations, pension funds, insurance companies, health care groups, really any investor that might benefit from a customized institutionally priced equity strategy. Our goal is to not only deliver solid performance at low levels of risk but also in providing personalized service to all of our clients.

When you call our offices with a question or for an update you get through to a principal of the firm. Thatís a value we have always believed in and something we feel is missing in todayís mass produced, one size fits all investment product landscape.
  How do you customize client portfolios?  
  We begin by getting to know our client or potential client, understanding their investment objectives, their risk tolerances as well as their short and long term goals. Understanding their specific needs is critical to building a successfully customized strategy. From this information weíll identify the MPI strategy that most closely meets their needs and tailor the holdings until the end result is a portfolio that not only can earn the return they are seeking but do so without causing them to lose sleep at night. Often times itís as simple as keeping a little more cash than a typical account, but it can be as sophisticated as eliminating entire sectors or asset classes. As long as both sides are on the same page thereís usually a solution that works for most clientsí needs.  
  How do you vary the proportional allocation between fixed income and equity for your clients?  
  Again, this is decision that is arrived at after getting to know and really understand each client. Often times it boils down to a simple story problem that is driven by the amount of return required to meet their objective. We really see no need in taking unnecessary risk if a client can meet their future income objectives with the safety and stability of government bonds. Unfortunately in todays interest rate environment that has become much more challenging and investors are finding it necessary to enhance their income portfolios with equities. We have seen this with our own clients as well. Investors know they need more return than bonds are offering to meet their goals, but they are still uncertain about the risks in the economy and subsequently the stock market. Thatís where we come in and add value. Remember our roots are in conservative fixed income, so we fully understand the mentality that clients want appreciation without significant risk to their principal.  
  What is the average turnover for each of your investment styles?  
  Turnover is low, roughly in the 25% to 30% range. We are long term investors. Our themes and strategies are based on company fundamentals and longer term market and economic analysis. Timing the market is very difficult and often times leads to emotional knee jerk decisions. Thatís just not our style. We let our themes play out and overtime have found that benefits our clients much more than a market timing approach.  
  How do you go about constructing your portfolios?  
  Well obviously the strategy chosen and subsequent potential customization plays a significant role in determining an allocation mix and which individual issues will be ultimately held in any one client portfolio. From there itís a very straight forward approach. We screen our stock universe to find the candidates that meet our stringent requirements. Then overlay our macroeconomic outlook. From that research we create a target allocation model and begin filling it with individual issues and ETFs that meet both sets of analysis.

Typically our position sizes range from 3 to 5%. Our portfolios will typically have anywhere from 20% to 35% in foreign exposure, whether through ETFís or individual issues and tend to have a strong bias towards large cap companies. Though we are not market timers we do take a thoughtful pragmatic approach to constructing our portfolios. Itís a gradual process that may take 2 to 3 weeks to become fully invested.
  How do you do your investment research?  
  Itís really a two pronged approach. As I mentioned earlier we rely a great deal on fundamental screening of securities and sectors. We always want to make sure weíre investing in a company with a strong balance sheet, consistent earnings and appreciation potential whether thatís through dividend growth or earnings growth or a combination of the two.

Secondly we develop a macro strategy utilizing all available economic data and research. In this analysis we consider not only the data but our experiences. So itís not simply a black box that determines our holdings. We have over 60 years of combined market experience that we feel is a valuable asset to our clients. Lastly we combine the two sets of research and the end result is a portfolio of stocks and funds that meet our strict screens and fit our internal macroeconomic themes.
  Does MPI tend to use top-down or bottom-up analysis?  
  Itís really a combination of the two. We overlay our top down macro themes onto our bottom up fundamental stock screens and the end result is a portfolio of individual stocks and ETFís that meet both our fundamental filters and macroeconomic outlook.  
  Are there times when you become defensive towards the market and what do you do?  
  We are always concerned about the markets and underlying equity valuations. Having said that as I mentioned we avoid being market timers. If we see fundamental shifts taking place in market and economic data or a shift in Fed policy we donít hesitate to rebalance our portfolio or raise cash levels. However, we more often see normal corrections or selloffs as buying opportunities than reason for becoming more defensive.  
  Do you use any analysis that indicates when markets are over bought or sold.  
  We are continually assessing fundamental information to find attractive valuations, so the answer is, on a fundamental basis, yes we look for stocks or sectors that are undervalued or overvalued so to speak. The term oversold is more often used in a technical analysis or short term trading strategy which we do not employ.

The extreme levels of market volume and volatility in todayís equity markets combined with large electronic trading platforms makes it almost impossible to call near term tops or bottoms with any consistency. In our opinion investors are better served removing the ďnoiseĒ from the market place and taking a longer term investment approach than a shorter term trading approach.
  Who are the principles in your firm and what are their backgrounds?  
  I joined the firm in 1992 as an operations manager and trader. After earning my MBA in finance from DePaul University here in Chicago a decade later, I became an equity partner in the firm. I advise on both our Fixed income and Equity strategies and really enjoy working closely with our clients to help them achieve their long term investment goals. I live just down the road in Elmhurst with my wife Leigh Anne and three daughters Lily, Emma and Ava.

My partner Dave Pequet founded the firm in 1986. Prior to starting MPI he specialized in fixed income at several Wall Street securities firms including Prudential-Bache and Mosley Securities. He earned his Engineering degree from Michigan State University in 1974. Following college he was in the U. S. Naval Aviation Officer Flight Program. Dave is our Senior Portfolio Manager. He and I have been together now for 22 years. That relationship is a testament to the consistency we feel our firm offers our clients both from an investment perspective and a personal, service perspective.

Daveís son Matt Pequet joined MPI in 2003. Matt is responsible for the supervision and management of trade processing and settlements and the firms portfolio management systems. Matt is also accountable for all client and consultant reporting. Matt became a partner in MPI in 2008.
  We have heard a lot about the governmentís quantitative easing. What are your thoughts on it and how might it effect the markets?  
  Quantitative easing has been a significant tool used by The Federal Reserve to inject liquidity into the system to stimulate the markets and ultimately the economy. Basically this QE series of programs was simply a means by which the Fed monetized the government debt issuance, allowing the Treasury to issue debt at low levels of interest without driving up borrowing costs. By keeping interest rates artificially low they were in effect attempting to force banks to lend and investors to move to riskier asset classes. For the most part the 2nd half of that equation has worked as we see in rising global stock markets. Unfortunately there still remain some structural overhang difficulties in the banking sector and lending has not lived up to what the Fed was aiming for. The result has been a lackluster, slow growth recovery and lingering underemployment.

To us this stimulus, while effective in moving stock prices higher, has actually introduced another level of uncertainty on future growth. How much of the markets run up can be attributed to strong company fundamentals and how much is due to cheap money? That seems to be a question the markets are trying to digest right now and we see some of the air coming out of the so called momentum stocks during this process. Thatís because their lofty valuations have been driven by low rates and future growth opportunities, not by current traditional valuation metrics. In our approach we always look at valuation as an important component in our buy and sell decisions. We donít mind missing high flying momentum stocks because we know they can come down just as quickly. We prefer steady and consistent returns and those types of investments will become more in favor as we see the QE programs finally wind down at the end of 2014.
  What is the government doing now to either help or hurt the economy?  
  As I mentioned, in the near term the Fedís decision to keep rates low has helped the broader market returns. However, we think the jury is still out on whether or not in the longer term they didnít just delay the inevitable outcome of higher borrowing costs and a slower growth rate for the U.S. Economy moving forward. We think investors are going to have to rethink their outlook for longer term U.S. equity returns when QE comes to an end. Market performance expectations will need to be softened. With the Fed out of the way itís going to be difficult to substantiate excessive valuation multiples without them being accompanied by strong underlying earnings growth. We think a more normalized return is going to be in the 8% to 9% range and are telling our clients not to expect the consistent double digit returns that have been common place the past 5 years.  
  What is your general prognosis for interest rates and the stock market?  
  Rates are definitely heading higher and the yield curve will eventually flatten. This generally leads to slower growth and ultimately to a pause in the economic recovery. We still have a ways to go before we get to that point however. In the near term we see the modest economic recovery continuing and by mid-2015 leading to enough inflation that the Fed moves overnight rates higher. The stock market should continue to see upside gains during this time, albeit at a much more modest pace than the past several years. We are definitely heading into a stock pickers market where the broader U.S. equity indices begin reach full valuation. The good news is there are a number of high quality U.S. and international companies that are still significantly undervalued. We view many areas of Europe and the emerging markets as being about where our stock markets were about 18 to 24 months ago. Additio0nally we also believe there remains a significant opportunity in the U.S. energy sector, in particular natural gas exploration and transportation. So while we see interest rates moving higher and the broader markets ultimately slowing, we still have a positive outlook on many individual names and sectors we feel the markets have not yet rewarded.  
  How can investors contact you so they can learn more about MPI?  
  You can find additional information on the firm at our website which is:, or you can contact us at 630-325-6900 or simply send us an email at We are always happy to provide you with more information on our services.  
  I know you email frequent market alerts. How do you sign up to be on your economic update list.  
  You can sign up for our market alerts and economic updates on the homepage of our website or by sending an email request to  
Manager Services | Site Tour | Site Map | About Us | Interviews | Contact Us
© 2014 Money Manager Review TM. All Rights Reserved. Terms of Service | Disclosure & Privacy Statement1.