At Efficient Private Client’s (EFPC) we believe that the correct asset allocation plays the greatest part in producing benchmark-beating returns. Although superior stock picking can be a useful source in generating alpha, asset allocation contributes the greatest to return.
We also maintain that superior investment performance can’t be judged in isolation, but should rather be measured on a risk-adjusted basis. This implies that earning benchmark-beating returns during good times are not substantial enough proof of a skilled and prudent investment manager. It takes superior performance in bad times to show that the bull-market gains were earned through skill and not by simply allowing excessive risks.
At EFPC we mainly use a top down investment approach. Once the broad macro-economic strategy has been formulated we use a combination of quantitative and qualitative models to arrive at the desired portfolio.
Diversification also plays a vital role in the portfolio construction process. By using a quantitative blending process the volatility of portfolio returns can be reduced without sacrificing potential returns.