Why Asset Allocation?
Whether we realize or not, all of us have an asset allocation. Holding all of your liquid capital in cash is an extremely risk-averse allocation and potentially destructive to your long term purchasing power. You might hold only individual US stocks and don't realize you are making a large concentrated bet on your investment skill at the expense of diversification and risk reduction.
It is not whether you have an asset allocation, but whether your asset allocation is providing you with effective returns for the risks you are taking, We believe a carefully designed globally diversified asset allocation is the best approach to help you reach your long term goals.
When we create an asset allocation for our clients, we focus on five core concepts:
The allocation must meet your personal level of risk tolerance
Achieve an acceptable risk-reward through global asset diversification
Utilize liquid, transparent investment products
Employ cutting edge investment techniques
Include our current outlook
Your Risk Tolerance
As part of our discovery process with you, we work to understand how you perceive investment risk. Not only do we discuss risk you and help you understand the different paths of investment returns, but we employ a sophisticated risk based questionnaire to help focus in on your personal risk-level, Our asset allocation portfolios are tailored to reflect the best risk-return scenario for each level of investor risk tolerance.
Global Asset Diversification
Diversification is still the only free lunch available to investors. To achieve the best risk-adjusted portfolio return, we expand our investments beyond the typical US stocks and bonds to include emerging and frontier equity markets, real estate, commodities, infrastructure, emerging market debt, currencies and liquid alternative strategies. By incorporating asset with different levels of correlation we can significantly improve the risk-reward nature of your portfolio,
Liquid and Transparent Investments
We generally favor ETFs due to lower management fees, transparency and superior tax-efficiency. However, we will include mutual fund managers who have demonstrated the ability to generate superior returns over a full market cycle. We generally do not investment in non-transparent illiquid products as the potential returns are usually not sufficient to justify the risks. Liquid investments allow us to be flexible and adjust to changing market environments.
Cutting Edge Investment Techniques
Our investment tool-kit includes sophisticated risk measurement and management techniques to deal with asset returns that are not "normal", that is asset returns do not follow a bell curve and have fat tails. We utilize techniques that focus on the downside of asset returns to help minimize the losses experienced in our portfolios. We implement research which demonstrates that momentum, low volatility and value can add significant improvements in portfolio performance.
We incorporate our current tactical views into our portfolio allocation. For example, bonds have experienced a 30 year bull market and we believe future bond performance is likely to different from the past and our portfolios reflect this view.