Asset Allocation: Building One Portfolio at a Time
The investment climate today offers a sea of opportunities and challenges. We focus on understanding when the market environment is rewarding or penalizing which helps to set the framework of the asset allocation to either a defensive or opportunistic tone. We believe that portfolio building starts with a sound, tested asset allocation process and construct specific portfolios for each of the different themes using an overarching asset allocation process as a guide. All the portfolios must be well-diversified among broad investment types and have the most optimal mix to meet varying investment objectives. Our asset allocation process is a multi-disciplined, collaborative effort. Each week potential investment opportunities are analyzed with the goal of augmenting longer-term perspectives with shorter-term asset allocation opportunities.
Security Selection: Populating the Asset Classes
Once asset allocation has been established, the next step is to populate each portfolio with securities. We operate on a shared philosophy that diligent fundamental research and a well-defined analytical process, rigorously adhered to, is the key to identifying, recommending, and monitoring investment opportunities that offer the potential for competitive long-term, risk-adjusted returns.
Portfolio Construction: Putting It All Together
Once the asset allocation is created and the due diligence is done on the individual securities, it is time for portfolio construction. Making sure the combination of securities leads to a competitive performing portfolio is the key finishing step in our process. Simply taking a variety of securities from different asset classes and weighting them in a particular manner does not ensure a suitable portfolio. Analysis must be done on the portfolio as a whole to make sure the end combination is as prudent as we can make it. From the asset allocation strategy to the selection and combination of underlying investments, each portfolio is specifically designed to address the objectives of your investment theme, while keeping in mind no strategy or asset allocation strategy ensures a profit or can protect against a loss.
Ongoing Monitoring of Portfolios and Underlying Investments
Once the portfolio has been built and implemented, it is continuously tested and monitored to ensure that it remains true to the original goals. Our investment decisions and model portfolios are monitored closely on a daily basis against their benchmarks, peers, and our own internal metrics. This process ensures that the portfolios are positioned prudently for the short-term and long-term with regard to a variety of factors. Knowing how our strategic point of view, tactical asset allocation, and implementation decisions have performed in the past, and more importantly, why they performed the way they did is a critical input to the decision-making process.
Tactical allocation may involve more frequent buying and selling of assets and will tend to generate higher transaction cost. Investors should consider the tax consequences of moving positions more frequently. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.