In mid-May, these were some of the names RNC Genter was using in that strategy:
Energy: Phillips Petroleum, Total
Industrials: General Electric, Illinois Tool Works, UPS
Consumer discretionary: Target
Consumer staples: Altria, Philip Morris, Molson Coors
Healthcare: Johnson & Johnson, Merck, Pfizer
Financials: Aflac, BlackRock, Marsh & McLennan, Wells Fargo, JPMorgan
Technology: Intel, Applied Materials
Telecoms: AT&T, CenturyLink.

Ensuring Consistency
RNC Genter's risk management involves being very consistent with the securities selected. Genter says a mistake people often make is to stretch for either yield or growth, and begin to move away from their core competency or the core target they were structuring in the portfolio. "Falling victim to that siren song is a very easy thing to do," he says.

To ensure consistency, RNC Genter imposes basic parameters. For example, in the high-dividend equity space, these include a minimum dividend of 2.5%, no cuts in dividends during the previous five years and the likelihood that the portfolio will generate roughly double the S&P 500 in dividend cash flow. In addition, the underlying straight debt of all stocks has to be investment grade. "These specific parameters keep you on the straight and narrow so you stay very consistent," Genter says.

Similarly on the bond side: meeting quality parameters, and ensuring that what is being bought and the desired cash flow are consistent.

The other primary way the firm controls risk is by portfolio structure. Genter says one of the biggest mistakes of amateur investors as they start assembling their portfolios is in the individual stocks and bonds they select. "It's how those individual securities and ideas marry together to control the risk and diversification that makes the difference," he says.

He says no individual position should exceed 5% of the total portfolio, which should be diversified by economic sector and by economic sub-sector; if the portfolio is overweight in a specific sector, managers must be able to identify the reason why. "It's OK to make bets, but it's important to understand where your bets are and the probable influence on your portfolio," he says.

On the stock side, the firm controls risk from a stock-bond-cash position because it has many balanced portfolios. It controls the overall sector allocation, and it makes sure not to be too invested in one stock.   

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