Portfolio Construction

 

We design portfolios made up of asset classes without regard for the current economic cycle.  We do not pretend to be prophets and therefore feel the best approach is to be prepared for whatever the markets may throw at investors.  This is done by including major asset classes such as cash, equity, real estate and commodities.  However, these major groups can further be broken down to sub asset classes as well. 

 

We will at times use sub asset classes in an effort to gain a return advantage while not necessarily increasing the standard deviation of the portfolio (perceived as risk by most clients) and at times this strategy even lowers the standard deviation of a portfolio.  Finally, we use an alternative asset class, such as a long short strategy, in an effort to add a level of protection to the portfolio with out harming the performance.  This design should work well in “normal” times and can help create a smooth performance for the portfolio over various economic cycles.

 

We may use inverse techniques or stops on certain positions in an effort to protect the portfolio during turbulent times.  As a result of these protective strategies the market exposure may be reduced until such time as we feel it prudent to return to the risk policy of the client.  These techniques may help to protect a portfolio during times of crisis.

 

The portfolio is designed around the risk policy of the client.  In this way we attempt to never put the client in the position of selling because of fear, a common event during market panics, as can be seen by examining the number of shares traded at market bottoms.

 

This design should help mitigate risk and give reasonable risk adjusted returns while helping clients get a good night’s sleep.