Evan Harp sat down with Brookmont’s Ethan Powell and discussed the importance of patience, his upcoming catastrophic bond product, and why independent registered investment advisors inspire him.
Evan Harp: When and how did your practice begin?
Ethan Powell: Brookmont was founded in 2007. It was a lift out of the most successful equity strategy of a bank trust department. I became a 50% owner in 2018 after one of the founding partners — who was a friend —unfortunately passed away from cancer and I purchased his family’s equity.
We also launched an affiliated nonprofit called Impact Shares in 2015 as a social and environmental complement to our financial alpha that we were driving through our Brookmont strategies.
The Philosophy of Patience
Evan Harp: What is your investment philosophy?
Ethan Powell: At Brookmont, our investment philosophy is patience. We typically have a hold period of three to five years in the securities we purchase. This results in an annualized turnover in our strategy of around 10%-20%. We’re concentrated. We generally have 30-40 names in any one of our portfolios. And we believe that once you get too many names in a portfolio, it starts to dilute your active security selection and your ability to derive alpha on a consistent basis.
We also value diversification. And we look at cross correlation between our holdings as well as ensuring that we are in line more or less with our sector concentrations relative to the index we’re trying to beat.
Powell on His Biggest Obstacles
Evan Harp: What’s the biggest obstacle you had to overcome, and how did you do it?
Ethan Powell: Broadly, our industry has been drifting towards commoditized investment advice. That’s a huge obstacle for us. Because we believe there’s value in having thoughtful, differentiated market exposure. It more than pays for any actively managed fees that are charged. However, increasingly, both retail investors and financial intermediaries are going towards low cost beta commoditized financial portfolio construction.
A Sneak Peak at a Coming Product
Evan Harp: What’s something happening in the market right now that you think not enough people are paying attention to?
Ethan Powell: We have an interesting product that will be launching before the end of the year. That’s a catastrophic bond ETF. And it basically is a corner of global capital markets that insurers and reinsurers use to price risk associated with holding hard assets in geographies that are disproportionately impacted by increased climate volatility. Think Florida hurricane bonds. We believe that this asset class will play an increasingly important role in our society as we move forward.
Why Independent Advisors Inspire Powell
Evan Harp: Who is another financial advisor that inspires you, and why?
Ethan Powell: The entire cohort of independent RIAs that are spinning off of large wirehouses inspire me. I think what they see in the market is their unique ability to drive value for their client base that isn’t contingent on a large organization or infrastructure. Because, ultimately, what we do is very personal, and they are maximizing the personalization of financial advice that they bring to the market.
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