Our Philosophy

Investment Philosophy

The Investment and Trust Services Department of Citizens State Bank & Trust Company follows an investment strategy based on Modern Portfolio Theory. This theory states that the performance of an investment portfolio is more dependent on the allocation to either stocks, bonds and cash than to anyone one stock, bond or single investment. The allocation of each portfolio consists of a mix of equity securities (stocks), income securities (bonds) and cash equivalents. As the portfolios progress from conservative to more aggressive the percentage allocation of equity securities increases and the percentage allocation of income securities decreases. This strategy provides an array of diversified investment portfolios to meet the needs of a variety of client objectives.

Currently, the investment vehicles of choice for the foundation of each portfolio are no-load, open end mutual funds, which we form into a “fund of funds”. Using objective industry data along with subjective discussion and a review of economic trends and projections, we employ three steps to evaluate each mutual fund as follows:

Evaluation of Objective Criteria

  1. Manager and fund performance relative to peer group for each asset class evaluated. Evaluation based on Morningstar and Value Line for Mutual Funds using funds and fund managers with investment management experience of at least 10 years, using 3, 5 and 10 year performance when available.
  2. Lowest fees and expense ratios possible relative to peer group; institutional fund shares are used whenever possible.

Evaluation of Subjective Criteria

  1. Economic outlook; considering such things as business cycle, geo-political issues, industrial sector rotation and other circumstances and possible consequences such factors may create. This is an evaluation of current and anticipated near term (1-3 years) economic conditions.

Once funds are chosen for each asset class they are combined as part of each portfolios asset mix. Each holding is monitored daily and is subject to replacement at any time. Portfolios are re-balanced periodically to maintain the proper percentage allocation. These model portfolios are the foundation for each account. Individual stocks, bonds and more complex financial instruments may be incorporated for larger accounts, keeping in mind that the ratio of equity securities to income securities stay in line with clients asset allocation investment objective. The exposure to any one equity security should not represent more than 5% of the market value of any investment portfolio unless unusual circumstances dictate otherwise. Individual securities will also undergo extensive and ongoing review and evaluation. The stated goal of any investment portfolio shall be to meet the investment objective of the client, trust and its beneficiaries or other account ownership with consideration of risk aversion, time horizon and the effects of inflation.

We firmly believe the best benchmark to measure portfolio performance is not the S&P 500 or the Dow Jones Industrial Index but rather each client’s personal goals, needs and desires.