The Top 40 Under 40: Building an Asset Allocation Focus

No. 31: Andrew Stern

Firm: Morgan Stanley

AUM: $615 million

Location: New York

Age: 37

Note: This profile is part of a special series devoted to On Wall Street’s Top 40 Under 40 ranking for 2012. Every day we take a look at an advisor who made the list to find out the secrets of their success.

Andrew Stern calls himself a generalist, with a range of different types of clients. “I work with the CEO of a Fortune 500 company,” Stern says, “I work small institutions, I work with grandmothers.” Stern’s clients might be diverse, but they’re hardly a cross-section of the population, with liquid assets of $5 million and up.

How does Stern serve this broad, affluent client base? “With a strong focus on asset allocation,” he says. “As opportunities surface, we’ll also make some tactical recommendations.”

Typically, the core of clients’ portfolios consists of equities meant to be held for a long time period. “They’re mainly large-cap domestic companies,” Stern says, “although there is some allocation to non-U.S. stocks. Often, the companies our clients hold pay dividends.”

The past 10 years have produced “no shortage of challenges” for such stocks, as Stern puts it. “At times we’ve reduced equity exposure and increased our holdings of fixed income, especially in the municipal space,” Stern says. Such moves have helped performance in a difficult decade.

“Now, domestic, dividend-paying large-caps are what we like the most,” Stern says. “They’re relatively cheap: the P/E ratios of some industry-leading companies are below historical norms. Corporate balance sheets are strong, too.” What’s more, the Fed has indicated it will keep interest rates low until at least mid-2015, and dividend-payers may offer an appealing income stream to investors in a low-yield world.

“Dividend-paying stocks have many positive characteristics,” says Stern. “Companies with a history of paying dividends tend to have substantial free cash flow. Often, they’re industry leaders. In addition, the dividend may help to support the stock price in a down market. Long term, a meaningful portion of the stock market’s total return has come from the reinvestment of dividends.”

While a focus on dividend-paying stocks may be considered a classic strategy, Stern and his team also appreciate the important role that innovation can play for advisors. “We’re starting to use social media to communicate with clients and prospects,” he says. “In a fragmented, competitive business, this is becoming one more way to get your voice heard. We’re just getting under way with this, but we can see the writing on the wall.”