Our asset allocation strategy integrates disciplined, valuation driven quantitative models with a forward looking assessment of macro-economic and capital markets conditions.
The philosophy behind our Strategic Allocation Modelling effort is to identify and continuously measure key relationships in capital markets, to compare current levels to a statistically identified "normal" range and to use observations outside of that normal range as the trigger for adjustments to the recommended asset allocation. Our strategic models are built from three major components:
Valuation Models
Measures the relationship between bond yields and earnings yield on equities.
Profitability Cycle
Measures the stage of the profitability cycle on the basis that equity performance is typically driven by Return on Equity (ROE) momentum.
Tactical Indicators
Looks at a variety of measures such as price momentum and investor sentiment. Useful as a timing tool as evidence of extremely positive or negative investor sentiments, which typically coincide with inflection points in capital markets trends.
The model output is then stress tested to assess the impact on the recommended asset mix under a variety of assumptions of future changes in interest rates, ROE levels and equity performance. These scenarios are assessed qualitatively to arrive at adjustments to the recommended allocation, which is then applied on a client by client basis, in the context of specific client objectives and risk tolerance.
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