Frequently Asked Questions
What are investment models?
An investment model describes a system that relies on the application of investment theories and concepts, first principles and among other things, a set of hypotheses about the future condition of real world financial and economic situation to create investment solutions that maximize expected returns relative to expected risks, meet defined constraints and preferences, and integrate market uncertainties.
What do you mean by the Risk/Return Trade-off?
The foundation of our philosophy is based on the idea of risk management. Higher risk is not a guarantee of higher return but simply a requirement for the possibility of higher returns – and with it, the possibility of higher losses as well. We focus on the efficient use of risk (and risk budgets) by relying heavily on Mean-Variance Analysis (MeVa) for the quantification of risk/return tradeoff.
What about the Efficient Market Hypothesis, what is it?
The hypothesis states that observable prices reflect a security's intrinsic value as markets (herein, the collective action of "rational" investors) quickly incorporate and reflect all available and relevant information in the market price. Thus, in order to identify the value of a security one should simply look at observable market price. However, sometimes we believe this assumption is far from the truth and observed market prices don't necessary reflect the asset's intrinsic value, otherwise a simple theoretical paradox called the Grossman-Stiglitz Paradox (GSP)* would exist.
*GSP: If freely obtainable market prices reflected an asset intrinsic value, then a rational investor would not incur the cost of obtaining and analyzing information to obtain a second estimate of the asset’s value. If no investor obtains and analyzes information about an asset, however, then how can the market price reflect the asset’s intrinsic value? – aka: “The rational efficient markets formulation” (Grossman and Stiglitz, 1980).
Can you explain optimization of asset allocation?
Yes. It's a process/tool that help us ensure that our investment strategies and portfolios use risk effectively (and efficiently) by reacting to the expectation of risk changes.
What is proprietary about your investment management process and investment strategies?
The investment management process is public domain; however, the intellectual property and expertise necessary to conceptualize, design, implement, communicate, model and monitor this process is our source of uniqueness; which, together with strategic partnerships and an open architecture are the basis of our competitive advantage and value-added proposition to our clients.