Investment Consulting

Recent work includes the development of multi-asset class portfolio construction solutions. We believe that a balance must be retained between the number of asset classes and the benefits of diversification. Many asset classes are highly correlated and offer little added benefits when included in a well-structured wealth solution. Practically, for those clients managing smaller account balances, the level of granularity at the asset class level can border on the economically insignificant. If a solution contains dozens of asset classes (many of which offer little diversification benefit) we believe we are merely adding transactional inefficiencies and exposure targets that are so small they tend to be meaningless. Generally, our asset exposures meet most conforming expectations without containing largely redundant asset classes. We feel that any kind of decoupling is better addressed tactically within an asset class exposure. Using a combination of classic mean variance analysis, resampling, and factor analysis we compute traditional strategic asset class targets. We offer the below graphics as a typical example of how we begin to structure a possible solution for our clients. Once we iterate on the asset classes that best meet our client’s objectives, we then evaluate how to populate these exposures. For most purposes passive exchange traded funds (ETF) are the most effective means of obtaining proper exposures. They offer liquidity, precision, transparency, and low fees. Tactically, we can adjust exposure with great facility as well and create derivative overlay strategies to meaningfully alter risk distributions. These risk management approaches typically do not change our long term strategic targets unless our expectations meaningfully change.
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