MPT with a twist
Active Asset Allocation Strategy

Typically, MPT has been a buy and hold strategy, with periodic rebalancing. While periodic rebalancing of asset classes is critically important, and a discipline we rigorously follow, it is our belief that a strict “buy and hold” philosophy, can allow devastating losses to a portfolio that might take years to recover. We have therefore developed an active asset allocation strategy instead of a buy and hold strategy for clients with a shorter investment horizon to retirement, or who have a very low risk tolerance.

The key to a successful active asset allocation strategy is to continually analyze what the most effective mix of investment opportunities is. This involves fundamental research, keen awareness of the domestic and global economic environment, and technical market analysis to determine the risk and reward status of each asset class. Next, while maintaining a properly diversified portfolio, we may over weight our allocation to assets with good value and an under weighted assets that are not performing, or bear undue risk.

Active asset allocation strategy gives an investor the opportunity to keep losses small in a bear market. By avoiding large losses in a portfolio, an investor not only loses less money, put preserves capital to take advantage the next opportunities. For example, if an investor loses 50% of a portfolio, it takes a 100% gain just to get back to breakeven. If an investor loses 10% of a portfolio, it only takes an 11% gain to get back to breakeven.

An active asset allocation strategy has kept us under weighted in equities during extended market declines, and allows us to participate during upward trends. This tends to greatly reduce portfolio volatility (risk) and boost long term returns by preserving capital in bear markets.

Another key benefit of an active asset allocation strategy is the ability to change the asset allocation in various asset classes. Economics, politics, and the volatility of the market itself change the opportunities and risk of each asset allocation. Therefore it takes time and knowledge to properly research the investment climate and the different opportunities and risk involved with each. This style of portfolio takes much more work, as the research and opportunities are ongoing. We think it’s worth it.



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