Investor profile:

Pete is 65 years old, married, and has three adult children. He is currently employed in the energy industry and earns roughly $1 million annually. He anticipates retiring completely from this position next year and relying solely on his portfolio to maintain his and wifes combined spending level of $400K annually. In addition to these portfolio assets, they also own a $2 million home in The Woodlands. Pete and his wife have no other financial assets or business interests. Beyond the value held in this portfolio, the only income they will receive is Social Security, which is not particularly impactful given their level of assets and spending.

Pete is more risk averse than the average client. His approach to investing generally places wealth preservation as the top priority, followed by keeping up with inflation, and capital appreciation after that. The volatility in financial markets during the onset of the Covid crisis was unsettling to Pete despite his ability to weather the storm.

Please complete the short response prompts on the following slides while maintaining a focus on what the implications of your observations are, why a client would be interested in them, and potential fixes where necessary to better align the portfolio with the needs and wants of the client within the constraints of the financial markets.

Question #1: Does the equity allocation exhibit any tilts or biases within size, style, or industry? If so, list and describe one example and how you might recommend a change.