Investment Solutions
PURPOSE BUILT PORTFOLIOS
Strategic Allocation Portfolios
Strategic Portfolios
Our portfolios begin with creating strategic asset allocations for the Growth and Income Portfolios. The strategic allocations for each portfolio have different risk/return profiles. Both portfolios are well diversified and designed to meet different investment objectives.
The Strategic Asset Allocation can be thought of as the baseline long-term asset allocation for each portfolio. This gives us a frame of reference against our option overlay positions to enhance the risk/ reward characteristics of each portfolio.
Conservative
Asset Allocation Process
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The first step in our Asset Allocation Process is to establish a strategic (long-term) asset allocation for each portfolio. We believe that at the core of building a diversified and efficient portfolio is Modern Portfolio Theory (MPT). According to the MPT, it's possible to construct an "efficient frontier" of optimal portfolios offering the maximum possible expected return for a given level of risk. We utilize the expected return, correlations, and standard deviation of various asset classes to design the most efficient growth and income portfolio.
Building Blocks
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The first step is to determine the type of asset classes and investments to use in constructing the portfolio. Below is a list of some asset classes.
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These broad asset classes can be further broken down into sub asset classes that can be used to create a more efficient portfolio. For example, international stocks would include developed markets and emerging market equities as well as growth and value components.
Future Expected Returns
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Past returns often are not related to future returns, so why are past returns used by so many when deciding upon allocations in a portfolio? Future expected returns, while of course they are just assumptions, can be more useful when deciding upon different asset allocations. Future expected returns are taken from several different sources and averaged to give return assumptions to be used when deciding upon allocations in the different portfolios.
Moderate
Growth
Aggressive
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Portfolio Objective
GTAA portfolios seek to preserve and grow capital by investing in both traditional (US and International Equity) and non-traditional (Real Assets). The portfolio will use both ETFs and mutual funds strategically allocated to each segment of the market. The Global Tactical Asset Allocation (GTAA) portfolio utilizes an asset allocation strategy that uses more non-traditional asset classes and is actively managed to reduce the risk of sustained market downturns. Risk management is done through a long-term trend following strategy that actively monitors and manages upside and downside exposure to the underlying holdings in the portfolio. In addition, every security in the portfolio is carefully screened based on liquidity, cost, and performance criteria to ensure that the integrity and quality of the portfolio is maintained.
Global Tactical Asset Allocation
Managing Market Risk
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A well-diversified portfolio has proven to be a good way to reduce the volatility of the value of an investment portfolio. But during times of extreme stress, like the financial crisis or the tech bubble in 2000, all investments are subject to downside risk. To reduce the effects of this kind of volatility and improve long-term performance, CS Advisors uses momentum analysis on each underlying investment in the portfolio to actively manage risk. The analysis identifies when a negative trend is developing for a specific investment, triggering a sell for that security.
Putting It All Together
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The above illustration is a back tested comparison of the GTAA strategy to a buy and hold portfolio (not risk managed) and the S&P 500 and shows a strong validation for the GTAA portfolios to deliver their stated objectives. The benefits are very compelling:
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Long-term performance is improved (blue line).
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The level of volatility, as measured by standard deviation, is lower as compared to a buy and hold (red line) or an investment in the S&P 500 (yellow line).
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And the worst downside performance in any given year was a fraction of what would have been experienced in the buy and hold portfolio.
Hypothetical Backtest of Risk Management Strategy
*The hypothetical backtest shown is for illustrative purposes only. The portfolios shown do not reflect actual accounts or trades. The timing portfolio show varies from the actual investments and allocations used in CS Advisors' GTAA portfolio. Returns shown in the hypothetical are not intended to show actual returns and are not indicative of future returns.