Bob Kalman co-founded Miramar Capital, LLC in 2017, where he is a senior portfolio manager. He previously was a founder and principal at Kalman Kushnir Capital, Inc., with offices in Chicago, New York, and Hong Kong.
Russ Alan Prince: Tell me about Miramar Capital, and your approach to providing personalized portfolio management services and “Personal CFO-quality” services to your clients.
Bob Kalman: Miramar Capital is an independent firm with more than 60 years of combined experience managing investment portfolios for private clients and we always act in our clients’ best interest. We see our primary role as providing a clear and disciplined approach to investment excellence and personalized wealth management.
We manage one specific strategy that should represent the largest allocation of a family’s portfolio. But we don’t do it in a vacuum. We take a holistic approach that includes their entire asset picture.
We also incorporate decisions that guide the direction and longevity of multigenerational wealth. For example, we periodically are asked about strategies for next-generation funding or the timing of passing wealth to both the current and next generations. If a business owner is considering an M&A situation or a family stock transfer, we will help that owner value the business, which serves as a channel check against outside valuation firms. Clients that have or are about to have significant liquidity events need guidance and access to the professionals that will assist them with estate planning, adequate tax strategies, and financial portfolio decisions. Our goal is to ensure everyone is working together on the same page and always acting in the clients’ best interest as fiduciaries.
We offer tailored services for our clients. We’ll even perform basic tasks, such as paying estimated federal and state taxes. As my partner and firm co-founder, Max Wasserman is fond of saying, “We are the captain of the ship, but the client owns the ship. Together, we choose the course and it’s our job to ensure the ship and passengers arrive at the destination safely.” We consider it an honor and privilege to serve them, and in doing so, we adhere to principles that much of the industry does not. And we’ve performed well for them.
Prince: What is so unique and different about your investment strategy that emphasizes growing cash flow in the form of dividends?
Kalman: First and foremost, we manage money in-house and exclusively use proprietary research to deliver results that help clients prosper and pursue their goals. Most growth investors don’t realize that dividends comprise on average 40% of the S&P’s returns since 1930. So, our primary focus is on growth and dividend growth, rather than pursuing companies that only pay high current dividends. To achieve that, we begin with a top-down view, examining the economy, the business cycle, and what we expect monetary policy will look like in the next 6-12 months. That analysis drives our decision as to which sectors are best suited for investment, and in what weightings.
We then take a bottom-up approach in the selection of individual names that meet our stringent criteria, which, in addition to dividend growth, include, among others, current payout ratio, quality of balance sheet, and strength/growth of cash flows. We choose the names that we believe provide asymmetric return potential, which we define as no more than 10% downside risk with 30% or more on the upside.
Our portfolio holds between 29 and 34 names. Unlike many managers, the two principals of the firm hold every name that our model portfolio owns. We invest and assume the same risk alongside our clients.
Prince: How should high-net-worth individuals think of the active management versus passive management strategies in terms of constructing a diversified portfolio to meet their needs in the environment, and where do you see the opportunities in today’s markets?
Kalman: Our overarching focus is risk mitigation while delivering consistent and relative risk-adjusted returns. That drives our stock-selection process. Managing a growth portfolio that delivers consistent, growing dividends and produces current cash flow allows us to target lower overall portfolio volatility, generating a current beta of point 77. That combination delivers alpha through our conservative strategy. Passive investing does not offer risk mitigation, as most indexers, or closet indexers have several overlapping positions, regardless of their original investment strategy.
We correctly forecasted that the Fed would need to raise rates and shrink its balance sheet well before many managers. In an upward trending interest rate environment coming off historically low levels and very strong returns by stocks that had little to no positive cash flow, we further ascertained that certain sectors of the market were grossly mispriced. We underweighted tech companies, excluding those with no cash flow or dividends entirely. We now are adding to our positions in mega-cap tech, and we favor the Health Care and Financials sectors.
We currently hold Prudential and JPMorgan, names that we consider to be among the cream of the crop in the financial sector. We also hold Corning Glass, which pays a 3.1% dividend. Among its products is gorilla glass used in cell phones, computer screens, and new OEM autos. In addition, Corning has a partnership with Samsung, whose global market share of the cell phone market exceeds Apple’s iPhone.
We also like UPS, paying a 3.4% dividend. The company increased its capex years ago to attain best-in-class logistic technology, has pricing power, and generates amazing cash flow because people are moving more goods via carrier. We hold Target, paying a 1.4% dividend, as a growth story. It is strong in semidurable and consumable goods and has a partnership with CVS, which drives traffic to each other. In the Energy sector, we hold Chevron, paying a 3.45% dividend. It is an integrated oil company, with more pricing power than some of its competitors, and is diversifying into renewable energy.
In fixed income, we invest exclusively in super high-quality corporates and municipals and avoid securities that come with higher risk. In a rising rate environment, we prefer short-duration bonds, given the shape of the yield curve which also helps to mitigate risk.
RUSS ALAN PRINCE is the Executive Director of Private Wealth magazine (pw-mag.com) and Chief Content Officer for High-Net-Worth Genius (hnwgenius.com). He consults with family offices, the wealthy, fast-tracking entrepreneurs, and select professionals.