Investment Management

Our Approach to Portfolio Management

We use Modern Portfolio Management tools to perform investment analysis, portfolio design, and performance evaluation. These tools allow us to evaluate and measure quantitatively the relationship between risk and investment return. As a result, we are able to examine and design portfolios on risk-reward parameters and on the quantification of portfolio objectives.

Our Approach to Asset Allocation

Asset allocation is the process of selecting a mix of asset classes and determining the efficient allocation of capital to those assets by matching rates of return to a measurable tolerance for risk. It is no longer a one-dimensional process of selecting the right stock, bond or property to place in a portfolio.

Modern portfolio theory is based upon four basic premises.

  • Investors are inherently risk-averse. Investors are not willing to accept risk except where the level of returns generated will fairly compensate for that risk. It is probably reasonable to assume that investors are more concerned with risk than they are with rewards.
  • Markets are basically efficient. With the advance of information technology and more sophisticated investors, the markets are likely to become even more efficient.
  • Attention should be shifted away from individual securities selection to consideration of portfolios as a whole based on risk-reward parameters and on the identification of portfolio objectives. In a study* conducted by three leading financial analysts, it was determined that, on average, 93.7% of the variability in the risk and returns of a portfolio could be explained by the portfolio's asset allocation.
  • For any level of risk that one is willing to accept, there is a rate of return that should be achieved.

Quantitative methods are now used for measuring risk and diversification, making it possible to create efficient portfolios when measured on risk/return basis.  To provide the services that our clients require today, we utilize computer models and technical analysis to develop and manage your portfolio.  We use a form of asset allocation called Tactical Asset Allocation. This approach attempts to improve portfolio performance by making small "mid-course" adjustments to the agreed upon long-term strategy based upon changes in market environment.

Please be aware that diversification and asset allocation strategies do not assure a profit and do not protect against loss in declining markets.

*Study conducted in 1986 by Brinson, Hood & Beebower.

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