The Managed Asset Allocation (MAA) strategy
is an extension of the core methodology employed in
our TAA product. The product takes a longer term strategic
approach by considering numerous asset classes across
the full spectrum of risk and return. The asset classes
could include, for example Treasury bills, corporate
bonds, large and small cap stocks, international securities,
real estate investment trusts, etc. Through an interactive
process with our clients, we review multiple potential
risk and return scenarios for the portfolio and establish
strategic targets for each asset class selected. In
addition we include the TAA product as the core holding
of the portfolio.
The decision to determine the proportions
allocated to each asset class is, as with TAA, driven
by our proprietary mathematical model which takes into
account investment value, risk and importantly, the
correlation of one asset class with another. A key determinant
of portfolio risk is not only the mix of asset classes
but the degree to which they are correlated. Assets
that are not highly correlated, that is move in opposite
directions, have a powerful diversifying affect on lowering
the risk level of the total portfolio. The characteristics
of the asset classes combined with the client’s
risk tolerance enable us to determine the appropriate
strategic targets for each asset class.
Implementation of the strategy involves
utilizing no-load, low cost index-style mutual funds
or collective investment funds that closely replicate
the composition of the markets we seek to enter. Such
funds give us the ability to move efficiently into and
out of the strategic asset classes held in the portfolio.
The strategic targets are typically reviewed on a semi-
annual basis but the TAA weights are reviewed monthly.
Modification to the TAA positions will allow us to move
the portfolio to greater or lesser stock weightings
as a function of the undervaluation(overvaluation) of
those markets. Thus the portfolio is managed in a dynamic
fashion while maintaining long- term strategic risk
and return goals.