We believe that individuals and institutions come to investment managers because they require an investment strategy customized to fit their needs and goals. We respond to an inquiry by asking a potential client to fill out a questionnaire which details their previous investment experience, their current portfolio, their tolerance for risk, and their short and long term financial goals. Based on this questionaire and follow-up conversations, we develop an investment strategy which we believe is appropriate for that client.

Heron Capital Management, Inc. begins with a top down analysis of economic conditions, evaluating the climate for investing in the stock market. This macro model uses information about the yield curve, commodities prices, currency movements, and movements in the major indices to come up with an overall bull/neutral/bear rating on the stock market. The second model recommends asset allocations among different sectors of the stock market depending on whether the economy is in the early or late stages of expansion, or whether the economy is in a period of contraction.

Heron Capital Management, Inc. evaluates individual companies using a combination of quantitative, technical and fundamental criteria which have been shown through experience to give reasonably good objective selections. Quantitative selections are backed up with additional qualitative analysis. About 250 companies, diversified across the major stock market sectors of technology, healthcare, financial services, consumer durables and non-durables, energy and business services, satisfy these criteria.

A typical client’s account will have an exposure of 100% to stocks in a period rated bullish by the macro model, 75% in a period rated neutral and 50% in a period rated bearish. The remainder of the account will be invested in bonds or money market instruments as is deemed appropriate by the firm. For those institutional clients who wish to be 100% invested in stocks at all times, Heron Capital may purchase put options on indexes to reduce exposure of the client to the stock market during periods when the macro model has rated conditions neutral or bearish. The options purchased are always long dated and out of the money and are used only as hedges, never as outright positions.

In constructing portfolios, consideration is made of the client's financial objectives, the degree of industry diversification in the account and any other factors governing the client's account. Each portfolio will hold between 28-40 individual stocks, with no more than 25% of the account allocated to any one sector. Initial positions range from 2-3% of the portfolio. Positions larger than 5% are monitored particularly carefully, while positions which grow to over 10% of a portfolio are automatically cut back by half. Fixed income securities may be included as necessary to achieve client's objectives for total annual return.

The majority of client accounts at Heron Capital Management are taxable so minimizing realized capital gains is an important part of our work. Turnover (defined as the number of times that an asset has been replaced per year) in client accounts averages 20%/year which is the equivalent of holding stock positions for an average of five years. Capital gains are deferred until the asset is sold, commission expenses are minimized. More aggressive managers average turnover of 100-150%/year; however, we don't believe such heavy trading is in the best interests of our clients.