Why is Investment Process So Important?

There are a number of factors that result in the need for a consistent, disciplined investment process:

  • The annual return of a portfolio cannot be controlled or predicted.
  • Both known and unknown systematic and asystematic factors contribute to the behavior among asset classes and sub-strategies within a portfolio.
  • While each asset has a distinctive set of behaviors under normal circumstances or market conditions, the relationships among asset classes break down under distressed or extreme market conditions, and the benefit of diversification is lost.
  • We cannot time “fat tail” or extreme events.
  • Human behavior and crowd psychology have demonstrated repeatedly that markets tend to overshoot on the upside and oversold on the downside.  The reality is that these extreme conditions can remain so for long periods and self-justification of “this time is different” rationale.

For these reasons, we can only rely on a prudent process in portfolio management to serve as a guardrail.

“Bull markets are born in pessimism, grow on skepticism, mature on optimism and die on euphoria.” – Sir John Templeton

Our Process

Our investment management process is divided into six main steps:

STEP 1: Identify Investment Objectives
Identify a clear set of investment objectives based on client’s investment criteria such as risk, expected return, liquidity needs, tax considerations, and time horizon, among other personal, financial and emotional factors. Then a formalized investment policy that summarizes the investment approach is prepared and agreed to by the client.

STEP 2: Construct Benchmark Portfolio
Asset allocation is the most impactful and important decision in managing a portfolio. As such a generic, benchmark index-based neutral portfolio is constructed with a “core-satellite” asset allocation.

STEP 3: Create Portfolio Core
Applying a forward looking secular global macroeconomic overlay, an index/passive beta equity combined with actively managed fixed income components to form the “core” for the portfolio. This core segment is expected to be the long term hold (strategic portion) for the portfolio.

STEP 4: Add on the Satellite Portion
The “satellite” portion of the portfolio (likely the tactical portion) is constructed using alternative asset classes (commodities, real estate, etc.) and/or alternative strategies (for manger alpha) to broaden portfolio diversification, opportunistically exploit the investment universe that is absent in the core portfolio, and/or dampen portfolio volatility

STEP 5: Develop Implementation Schedule
An investment or implementation schedule is designed to systematically invest the assets based on the cyclical market outlook.

STEP 6: Monitor and Revise
We ensure our clients’ portfolios continue to meet their stated objectives by rebalancing and making periodic tactical changes as needed based on both secular and cyclical views of the market. Transparency is a priority through ongoing portfolio monitoring and reporting.

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