Asset Allocation & Portfolio Construction

Asset Allocation

It is well-known that the asset mix is the main driver of performance.  Traditional models of portfolio construction have given way to advances in the investment industry yielding:

  • more appropriate measures of risk
  • improved assumptions for risk, return, and correlations,
  • more robust models.  
CARAT can help your organization with modern best practices within the finance industry.  

Stocks, Bonds & Alternatives

Stock and bond returns have little to do with returns of Alternative Assets.  Indeed, there are certain events which are profitable for futures investors -- but lead to losses in the stock and bond markets. Note that the energy crisis in 1973-1974 caused stocks to decline by almost 50% -- but resulted in good profits for certain alternatives.

More recently, the financial meltdown in 2008-2009 -- also saw certain asset classes perform well.

An investment in alternatives can help to smooth the growth of a traditional portfolio of stocks and bonds.

Sectors & Timeframe

While a prudent investment policy makes sense for institutional investors, a study of sectors and timeframe can yield interesting diversification potential.  

More specifically, dynamic option replication approaches may be useful for certain types of investors.  
Please contact us about Dynamic Asset Allocation ideas, research, and results.