A Word From The Advisor
A Our Purpose

Our mission at Oakwood Capital Management LLC is to provide our clients with outstanding investment and wealth management services, and we take this responsibility seriously. The time-tested investment process we use to tailor portfolios to our clients’ specific needs is based on quantitative and qualitative techniques and sound research. We all know that anyone can go to the store to buy flour, eggs, sugar and butter. The “magic” occurs in how those ingredients are put together to create a culinary masterpiece. The same is true of stocks, bonds, or mutual funds. The “magic” occurs when these investment vehicles are properly structured to create a portfolio that matches a client’s risk tolerance and return objectives.

Since its inception, Oakwood has been respected for its expertise in managing large capitalization US equities and fixed income products. A strict and continuous adherence to our investment process has been the key to success in providing clients with portfolios that build wealth and enable them to reach their investment goals. An extension of that same process came into play in our effort to find ways to improve the risk/return profile of client portfolios, and expand our abilities to other asset classes. We conducted research on various solutions to expand our investment universe the same way we would on an individual stock or bond. These intensive research efforts resulted in Oakwood’s alliance with the institutional firm, Dimensional Fund Advisors (DFA)(1), and increased our ability to offer clients very cost effective portfolio diversification throughout all markets, with a comprehensive allocation throughout all asset classes. We have listed below the answers to some Frequently Asked Questions regarding this topic.

Frequently Asked Questions

• When you mention DFA Funds, you use the word “institutional”. What does that mean?

In the purest sense, an institutional fund is available only to an institutional investor, such as a large corporate or public pension plan. The firms that manage these funds rely upon their ability to deliver superior and consistent investment results at a low cost, and word of mouth among plan sponsors and professional consultants to build their asset base. Their financial resources are used for research and technology versus expensive advertising campaigns and costly distribution strategies, which are common characteristics of retail name-brand funds.

• I have been a client at Oakwood for many years, and have been a believer in the benefits of Oakwood’s management. I need to understand if your process has changed as a result of your alliance with DFA. Can you explain this?

Oakwood’s management process has not changed. What has changed is the expansion of both our investment universe and our research department. Prior to our alliance with DFA, our investment universe and equity research focus was on high quality, large capitalization US equities, multinationals and ADRs. We realized, over time, both from our own knowledge of how the world is changing and from feedback from our clients, that we needed to offer more investment options. Research shows that over the past 25 years, the broad US market, which is 1 of 17 countries represented by the MSCI Developed Market Index, never topped the list in terms of annual returns.

We wanted the ability to offer strategy options that could span across asset classes, from small-cap to large-cap, from value to growth, from emerging markets to developed international markets, to real estate, and we wanted to do it in a cost effective manner.

• I would like to have a greater understanding about how Oakwood is adding value through its managed Global Equity, Balanced and Fixed Income Strategies. Can you help me with this?

Oakwood’s managed Global Strategies are based on extensive proprietary research and quantitative models that combine various underlying funds to create an overall portfolio that provides diversification with distinctly different risk profiles.

Let’s take a closer look at the management of Oakwood’s Moderate Global Equity Strategy, which is comprised of 100% global equities. This diversified strategy has an increased bias towards value, invests in multiple asset classes with an emphasis on smaller capitalization stocks, and is suitable for investors seeking above average returns through long term capital appreciation.

Oakwood’s management in this Moderate Global Equity Strategy consists of US Equities, Domestic and International Real Estate, Developed International Markets Equities, and Emerging Markets Equities. In structuring the US Equities portion of this Moderate Equity Strategy, Oakwood has researched and modeled five funds from the vast array of Dimensional Funds, based upon their risk and return characteristics. This is the identical process Oakwood employs to create any traditional equity portfolio except we increase diversification by using DFA funds instead of individual stocks. To break it down further, the US Equities portion of the Moderate portfolio consists of:

• Micro Cap
• Small Cap
• Small Cap Value
• Large Cap
• Vector Equity – A Core Portfolio seeking to purchase a broad and diverse range of small, medium, and large capitalization US securities that are considered value stocks to the market universe.

Oakwood has undergone a similar structuring process for each of the other segments (Real Estate - Real Estate Investment Trusts, Developed International Markets Equities and Emerging Markets Equities) to create a one-of-a-kind structure that, when backtested, outperforms both the S&P 500 Index and the MSCI EAFE Index(2) over a 10-year time period, and does so with lower overall portfolio volatility. Each of Oakwood’s other managed Global Strategies, the Conservative Equity Strategy and the Aggressive Equity Strategy, have undergone the same extensive structuring process.

• What are the primary advantages of investing in a managed Oakwood Global Structured Strategy?
  
  
• Research and Risk-Factor-Based Management
  In its alliance with DFA, Oakwood’s clients benefit from many years of pioneering investment research, now taken for granted in the industry. DFA was founded 27 years ago to provide institutional investors access to US small cap stocks, underrepresented at the time in most portfolios. DFA later introduced its first value strategies based on the Three-Factor Model(1). Oakwood incorporates this research into its managed Global Strategies to efficiently target risk factors across the global financial markets.
  
  
• Smart Trading Increases Returns
  Careful trading can reduce or even reverse the costs borne by traditional managers. Because Oakwood’s managed Global Strategies focus on capturing the systematic performance of broad markets rather than the random fluctuations of individual securities, we can keep costs low. We can also patiently and expertly concentrate on favorable price execution that neutralizes the effects of momentum and index rebalancing. And, finally, we can maintain portfolio-specific hold ranges that reduce turnover and trading costs.
  
  
• Exceptional Investment Portfolios and Client Service
  We are eager to continue building trusted investment relationships with high net worth individuals, and to manage assets for retirement plans, including IRAs and 401(k) plans, foundations, endowments, financial institutions, and consultants. And, as always, we support these customized investment portfolios with exceptional client service.

One of the most significant decisions you can make is choosing the right investment advisor. The right advisor can appropriately allocate your assets for a more secure future. Trying to do it yourself, or choosing the wrong advisor can lead you down a path of both second guessing and owning investments that may not be consistent with your investment goals. The course to risk-appropriate and optimized returns is one that we carefully analyze and design. By doing so, we increase your ability to generate returns commensurate with the risk you are willing to take. We add value by matching investors with carefully researched and structured portfolios, by defining their risk capacity and their return objectives, and then continuously monitoring and managing their portfolios.

We encourage you to freely communicate to us any questions, comments or concerns that you may have regarding the stock or bond markets, the economy, or any other investment questions as frequently as they come up. We invite you to send your questions to questions@oakwoodcap.com, where a member of our team will be available to respond to your inquiries.

(1) The investment strategy of Oakwood and DFA is based on the principles of Modern Portfolio Theory (MPT) and the Fama and French Three Factor Model for Equities. An important part of MPT is the Efficient Market Hypothesis, which says that market prices are fair; that they fully reflect all available information. This does not mean that prices are perfect; some prices may be too high and some too low, but there is no reliable way to tell. In an efficient market, investors cannot expect to earn above-average profits without assuming above-average risks.

Fama and French’s Three-Factor Model is an extension of another important part of MPT, the Capital Asset Pricing Model (CAPM). Put simply, the CAPM says that an investor’s expected return is proportional to a single factor, the stock’s risk relative to the entire stock universe. The expansionary Three-Factor Model is based on the following:

• Market: Stocks have higher expected returns than bonds.
• Size: Small company stocks have higher expected returns than large company stocks.
• Price: Lower-priced “value” stocks have higher expected returns than higher-priced “growth” stocks.

(2) The MSCI EAFE Index is recognized as the pre-eminent benchmark in the United States to measure international equity performance. It comprises 21 MSCI country indices, representing the developed markets outside of North America: Europe, Australasia and the Far East.