At Efficient Private Clients (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 tool in generating alpha, asset allocation is the greatest contributor 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 challenging 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.