Thought of the Week

1. This commentary is not intended as investment advice or an investment recommendation. It is solely the opinion or our investment managers
at the time of writing. Nothing in the commentary should be construed as a solicitation to buy or sell securities. Past performance is no
indication of future performance. Liquid securities, such as those held within DIAS portfolios, can fall in value. Global Financial Private
Capital is an SEC Registered Investment Adviser..
Thought for the Week (264):
The DIAS Lite Conservative Portfolio – Under the Hood
Synopsis
 The DIAS Lite Conservative (CI Lite) portfolio is a low turnover, K1 minimizing product for investors not suited for the DIAS Conservative Income (CI) portfolio.
 Although CI and CI Lite attempt to deliver the same goal over the long run, their compositions are quite different.
 CI and CI Lite continue to be a long-term investor’s best weapons in this war against seniors and savers.
What is the DIAS Lite Conservative Portfolio?
The DIAS Conservative Income (CI) portfolio is a very unique product, designed from the ground up to deliver 5%+ annual income by investing in low risk assets to preserve the capital base.
The Fed’s zero interest rate policy (ZIRP) appears to be going nowhere for at least another four years, and as a result, the war on seniors and savers continues. We firmly believe that your best weapon in this war is a product like CI, however, not every investor is suited for CI.
Our strict adherence to diversification requires CI to maintain a large number of securities, and as a result, only investors that are able to invest more than $75,000 should consider CI. The reason for this threshold is to ensure that the investor can accurately follow the exact composition of CI.
For example, if an account only had $10,000, then the account would not have sufficient funds to purchase all of the securities within the CI portfolio.
However, we strongly believe that income seeking investors with accounts less than $75,000 also need a weapon to fight this war, and Lite Conservative (CI Lite) was created to meet this need.
CI vs. CI Lite
Given the amount of feedback that we have received in our Under the Hood series of late, we felt a similar breakdown of CI Lite was warranted because although both CI and CI Lite seek the same goal, their compositions are quite different.
Let’s begin our analysis from the bottom and work our way up. Whereas CI utilizes exchange-traded funds (ETFs) for the fixed income allocation and individual stocks for the equity allocation, CI Lite is a pure ETF portfolio.
We prefer the use of bond ETFs for both portfolios rather than holding individual bonds due to three key advantages:
1. Customization: ETFs allow us to play out our themes in a very cost efficient manner. For example, our preference for high yield and short maturity bonds can be achieved by buying 2 separate ETFs specifically tailored to these criteria.

2. This commentary is not intended as investment advice or an investment recommendation. It is solely the opinion or our investment managers
at the time of writing. Nothing in the commentary should be construed as a solicitation to buy or sell securities. Past performance is no
indication of future performance. Liquid securities, such as those held within DIAS portfolios, can fall in value. Global Financial Private
Capital is an SEC Registered Investment Adviser..
2. Flexibility/Liquidity: ETFs are very easy to buy and sell which lowers the risk of ownership and affords us the flexibility to effortlessly manage changes to asset allocation.
3. Cost-Effective Diversification: A single ETF can hold several hundred bonds so investors gain immediate diversification to prevent any substantial loss from a single default.
In regards to the use of ETFs for the equity allocation in CI Lite, we achieve an additional advantage in addition to the three above – the ability to do more with less. Due to the large number of securities in CI, smaller portfolios would not be able to purchase all of the underlying securities in CI.
However, by using ETFs in CI Lite, an investor can hold significantly fewer securities in a low turnover, K1 minimizing fashion, yet still gain similar advantages of CI – namely capital preservation and income generation.
Short-Term Implications
So let’s move up a level and compare CI and CI Lite on the basis of asset allocation and sector exposures of each fund.
Classifications
CI
CI Lite
Cash
11%
6%
Fixed Income
31%
44%
MLP
7%
10%
Telecommunication Services
10%
0%
Utilities
6%
0%
Health Care
6%
4%
Consumer Staples
6%
0%
Energy
3%
0%
Industrials
7%
8%
Information Technology
3%
4%
International
1%
0%
Financials
0%
4%
Consumer Discretionary
1%
0%
Materials
1%
0%
Equity Index
5%
16%
Total Yield
3.84%
3.43%
Although the long-term goal of both portfolios is identical, there are a few implications worth noting that can create short-term discrepancies in performance.
1. Asset Allocation is Different: Although our views on asset allocation are reflected in both portfolios, the use of ETFs vs. individual stocks makes matching asset allocations between CI and CI Lite inexact given the difference in total number of securities in each portfolio.
2. Stocks are Different: Since we select individual stocks in CI and ETFs in CI Lite, there are times when an ETF in CI Lite will hold stocks not found in CI. Furthermore, gaining exposure to

3. This commentary is not intended as investment advice or an investment recommendation. It is solely the opinion or our investment managers
at the time of writing. Nothing in the commentary should be construed as a solicitation to buy or sell securities. Past performance is no
indication of future performance. Liquid securities, such as those held within DIAS portfolios, can fall in value. Global Financial Private
Capital is an SEC Registered Investment Adviser..
attractive income generating sectors like telecom is often best executed using ETFs classified under a different designation – for example via Equity Income and Industrials sector ETFs.
3. Changes Take Longer: We continually adapt to changes in economies and markets, and over time we modify our asset allocation to reflect these views. Due to CI Lite’s exclusive use of ETFs, we cannot make changes to asset allocation as fast as in CI. Over the long-term these two will be similar, but in the short-term, there will be minor differences.
NOTE: The last point may require further explanation. A single stock in CI usually comprises 1% - 2% of the overall portfolio, whereas a single ETF in CI Lite can range from 4% - 16%. Therefore, when we make changes in asset allocation, we can finely tune them in CI given the smaller positions to achieve exact targets that take longer to replicate in CI Lite.
Long-Term Implications
The long-term goal of each portfolio is identical and therefore investors should evaluate each similarly. In doing so, investors must remember two critical long-term implications:
1. Benchmark is Zero: The goal of both funds is to preserve capital and deliver attractive annual income. Capital is preserved when there are no losses to the principal and therefore, the benchmark for both is 0% each year.
2. Time Horizon is Critical: Due to the increasing equity component, cyclicality will cause movement in the capital base in the short-term. Furthermore, we continually adjust the composition of CI and CI Lite in anticipation of market changes that often take time to play out. Hence, investors should view returns over an 18-month period at the very minimum.
The bottom line is that the war on seniors and savers affect investors of all sizes, and the traditional income producing securities are no longer viable weapons. Keeping your cash in a bank generates no income. Government bonds barely meet inflation and tie up your principal for decades in the face of rising rates. Equities offer plenty of yield, but finding stocks with “bond-like” characteristics gets more difficult by the day.
CI and CI Lite are designed to deliver long-term income generation with strict focus on preserving the capital base. In the short term, the performance will vary occasionally due to the differences in composition, but long-term investors must be patient in order to use these income generators to their full potential.