Morningstar Advisor - October/November 2009 - 16

Advisor Profile Richard Bregman, MBA, CFA, founder and chief executive officer, MJB Asset Management Portfolio of Funds Bregman likes fund managers who display an independent streak. He has a value tilt but is neutral on market cap, geographic regions, sectors, and turnover. He uses Morningstar Principia to screen for managers with good relative performance, low expenses, and favorable risk-adjusted returns. “First and foremost for me is standard deviation, which I want to be below that of the S&P 500,” he says. “It’s the truest measure of actual volatility as opposed to beta.” His equity holdings include Third Avenue Value TAVFX, FPA Crescent FPACX, Longleaf Partners LLPFX, and Oakmark OAKMX. “Those managers value companies assuming there will be no earnings growth,” Bregman says. “They are only looking at what the company has now, and that’s what’s on the balance sheet.” A few growth funds make it into the mix, too, such as Jensen JENSX and Brandywine BRWIX. On the bond side, Bregman includes Loomis Sayles Bond LSBRX and FPA New Income FPNIX. The hedging strategy is implemented with investments in Highbridge Statistical Market Neutral HSKAX, TFS Market Neutral TFSMX, Leuthold Core Investment LCORX, Merger Fund, and Gabelli ABC. The Sensible Path How he caught our eye: Bregman’s evolving view of equity risk led him to hedge his clients’ portfolios ahead of the worst of the bear market. Career path: Attorney at various law firms (1981–1987); tax professional, Deloitte & Touche (1989–1991); vice president in private client group, Chase Manhattan Bank (1991–1997). Personal: Age, 52; married with one son, age 14. Hobbies include yoga, basketball, baseball, and drumming. Favorite funds: Third Avenue Value TAVFX, Merger Fund MERFX, Gabelli ABC GADVX, and FPA Crescent FPACX. his taste. The risk of owning them in great quantities far outweighed their potential return, he believed. So, he retreated further into alternative investments. At one point, his portfolios held just 20% in stocks and 20% in bonds and the remainder in hedging strategies. Last fall, he cut his exposure to fixed income entirely and added it to the alternatives. “I thought that the credit market was in disarray, and I didn’t want to be near it,” he says. Bregman was early in his moves, and it was a few months more before markets truly imploded. Even the hedges suffered more than he anticipated as arbitrage relationships broke down. Still in 2008, the average client portfolio was down 20% to 22%, much more than he would have wanted, but certainly better than the 38.5% drop in the S&P 500. By early 2009, though, Bregman became more positive on stocks as they sank to deeper lows. “I thought that for the risk inherent in the market, those were great prices,” he says. “I didn’t know if the prices were going to go up, though.” He hasn’t made any changes since then, and the portfolios are now about 40% in stocks, 40% in hedging strategies, and the rest in bonds. Bregman is slightly less bearish on bonds than he was a year ago, but he’s still not comfortable with how low rates are on short-term Treasury notes. He has a more favorable view of corporates and high-yield bonds. For the year through June 30, Bregman’s moderate portfolios were up 6% to 7%, well ahead of the S&P’s 3.2%. Bregman is the first to acknowledge that his investing-in-the-moment style might sound “Zen-like.” But in a world of uncertainty, he thinks that the most sensible path is the one immediately ahead of him. “I don’t believe that the past is necessarily prologue, and the future is unknown,” he says. “So all we are left with is the present.” K Ilana Polyak is a New York-based freelance writer. 16 Morningstar Advisor October/November 2009

Morningstar Advisor - October/November 2009

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