Investment Process


Crafting sophisticated, skill-based portfolios entails a series of ongoing, relative choices among investable asset classes within capital markets.  We employ a multi-disciplinary approach to assess the factors that influence asset class prices over different time horizons.  This objective and consistent process for evaluating the attractiveness of different asset classes balances proprietary longer and shorter-term macro and risk indicators. 

We use forward-looking techniques

Rather than rely exclusively on historical data or market capitalization weights to assemble portfolios, we formulate proprietary forward-looking return and risk forecasts for each asset class as part of our optimization process.  We frequently update these long-run expectations to support our goal of maximizing risk-adjusted returns for each client objective. 

We prioritize risk management

Our investment team goes to great lengths to understand the multiple sources of risk in portfolios -  and then seeks to actively mitigate volatility.  Our risk models allow us to gauge portfolio sensitivity to a variety of distinct sources of risk.   Since correlation between assets often increases during crises, we also engage in robust stress-testing, formulating extreme downside risk targets for each client objective.  This process evaluates the potential losses a given allocation would have experienced during prior shocks and adjusts accordingly.

We are active, flexible asset allocators

Our systematic investment process considers the ongoing influence of key macro factors on asset class returns, volatilities, and correlations.  These influences span multiple time frames.  A globally-diversified strategic core portfolio is adjusted based on changes in fundamental valuation for each asset class (longer-term) and the state of the economy/corporate profits (intermediate term).  A complementary satellite portfolio is used to gauge investor sentiment through behavioral finance indicators (shorter term). 

  • Fundamental Valuation: Asset class prices tend to mean revert to historical norms of quantified fair value over a full market cycle.  Using quantitative tools, we carefully examine each asset class’s fundamental fair value versus its current market valuation and adjust for extreme deviations between fundamentals and current sentiment.  All else equal, the portfolios will tend to have more exposure to assets which are statistically cheap relative to long-term norms and less exposure to asset classes which appear abnormally expensive.  Value effects can be slow normalize and are often realized over long investment horizons.
  • Economic State: Individual asset classes tend to perform well under specific macro “regimes” or economic environments and struggle under others.  The relationship stems from the fact that the broader economic environment affects the underlying cash flows of each asset class.  This analysis evaluates performance across business, credit, and profit cycles as well as monetary and interest rate conditions.  We employ a weighted, probabilistic framework to create an allocation mix that that accounts for each major economic scenario but is tilted toward our assessment of the current market climate. 
  • Sentiment: Investor sentiment and asset price momentum often fluctuates in response to shorter-term developments such as high frequency economic data, geopolitical events, and monetary announcements.  But unlike some macro managers who are event-driven, i.e. trying to predict market reactions to specific situations, our process seeks to determine when it is appropriate to broadly emphasize offense (pursue opportunities) or defense (provide protection) in a portion of the portfolio.  Our proprietary indicators attempt to identify directional trends and changes in market leadership.