Over the last 40 years, there has been an incredible amount of research by academics and investment practitioners in how capital markets work. As an investment advisor, it is our responsibility to integrate these concepts, theories and models into a practical investment philosophy.
The following principles’ form the building blocks for portfolio construction and management.
Markets work. Capital markets do a good job of fairly pricing all available information and investor expectations about publicly traded securities.
Diversification is key. Comprehensive, global asset allocation* can neutralize the risks specific to individual securities.
Risk and return are related. The compensation for taking on increased levels of risk is the potential to earn greater returns.
Portfolio structure explains performance. The asset classes that comprise a portfolio and the risk levels of those asset classes are responsible for most of the variability of portfolio returns
Therefore, in constructing investment models, we engineer portfolios that seek diversification benefits and favorable risk/return characteristics for our clients.
*A diversified portfolio does not guarantee against a portfolio loss. It may be possible that a diversified portfolio underperforms or out performs a non-diversified portfolio. Diversification does not protect against market volatility.
