Asset Mix Determination

Quantitative Techniques for Portfolio Construction

Over a long time horizon the most important consideration in meeting investment goals is the structure of the portfolio, specifically its asset-mix.

At Vantage we help our clients understand the risk-reward tradeoffs offered by the various capital markets, while enhancing the understanding of their tolerance for bearing different types of risk. Together we build a comprehensive investment strategy, custom-fit to achieve the return objectives and match the risk profile that has been established.

Rigorous analytical testing of insights into financial markets can produce robust models designed to take advantage of opportunities in capital markets.

Specially developed proprietary computer models in concert with a litany of evaluative tools are used to determine a robust asset-mix that minimizes the correlation between asset classes and lowers the overall portfolio risk.

Vantage makes extensive use of quantitative modeling techniques in all facets of our business. Techniques like Monte Carlo resampling, Black-Litterman Optimization, Portfolio Stress Testing, and elements from Statistical Process Control help us understand the potential range of outcomes from a given asset manager or a given asset allocation. The past represents one outcome from a wide range of outcomes that were possible. Likewise the future cannot be captured by a single expected return or volatility number. To properly understand the prospective risk and return characteristics of an asset mix requires modeling the distribution of future outcomes, from return and volatility, to drawdowns, funding requirements and cashflows. Probabilistic modeling and resampling techniques are well suited to this challenge.

We not only balance and control risk and return parameters among asset classes, but among various types of managers within each class. As markets are not static, the asset mix must be flexible enough to take advantage of changing market conditions over the course of business cycles and various economic conditions. Computer modeling is used to measure the relative value of asset classes, and assets are then reallocated to take advantage of shorter and intermediate-term trends.

In order to more easily and quickly adapt to ever-changing markets, Vantage offers several clients a Manager of Managers (MoM) structure tailored to the risk tolerances and return objectives of the client. The MoM is actively managed by Vantage according to a carefully designed set of objectives. The Manager of Managers structure can incorporate an entire portfolio or be a piece of larger asset allocation, giving plan sponsors and trustees increased flexibility in administering their charge.