Our Philosophy / Investment Beliefs

  1. Behavioral biases can influence investment decisions.

    Markets are generally efficient, but the human factor can lead to inefficiencies. Investors tend to exhibit some degree of emotion and bias in their investment decisions, such as the tendency to wrongly equate a good company with a good investment irrespective of the price, or to extrapolate historical performance into the future.

    Our Response

    We utilize analytical frameworks to help structure our research, and we implement quantitative, rules-based models to foster disciplined and repeatable investment decisions.

  2. Asset allocation mix is the primary driver of portfolio returns.

    Empirical studies1 have demonstrated that a vast majority of investment portfolio return (upwards of 90%) can be attributed to the asset allocation decision. In other words, the main driver of performance is how a portfolio is invested among different types of investment choices (e.g., cash, stocks, bonds, etc.).

    Our Response

    We focus on efficient and cost-effective management of the asset allocation mix to alter risk exposures as market conditions change.

  3. Traditional portfolio construction techniques have weaknesses.

    Financial planners and advisors often utilize static (or target) asset allocation techniques that may ignore major changes in the market, such as 2001 or 2008. A common approach is mean-variance allocation, in which a portfolio is constructed based on historical data in an attempt to meet an investor's stated risk and return objectives. The problem with approaches that are largely predicated on historical data is that they often lack the ability to adapt to the current market. A common pitfall is holding over-valued asset classes in a portfolio simply for the sake of diversification.

    Our Response

    We take a multi-factor approach to asset allocation that strives to increase exposure to under-valued assets classes and limit our exposure to over-valued asset classes over market cycles.

  1. Reference made to studies by Brinson, Hood and Beebower (1986); Brinson, Singer and Beebower (1991); Ibbotson and Kaplan (2000); and Vanguard Group (2003).