WHAT WE DO
|What Do We Do?||We capture the diversification premium that is available in markets.|
|How Do We Do It?||We use advanced data science to build robust, diversified portfolios, and then dynamically apply liquid leverage to them.|
|What Is The Benefit?||Our strategies add diversification into a portfolio without sacrificing returns or liquidity.|
|Why Does It Exist?||The diversification premium exists because investors typically choose concentration over leverage.|
A Journey to the Diversification Premium
8 The Outcome
Let's run through the animation one more time. This time starting with the concentrated equity portfolio.
This approach results in a significantly more diversified portfolio, which is less dependent on any specific type of macroeconomic environment. It achieves this without sacrificing return potential but rather enhancing it over time while maintaining the desired risk profile.
Quantifying risk correctly to build optimally diversified portfolios is the core of Viewpoint's portfolio construction methodology.
7 Prudent, Liquid Leverage
Volatility scaling is made possible through the use of prudent, liquid leverage. We achieve this using the most efficient, lowest cost leverage available through either futures markets or traditional margin. The leverage we use is more readily adjustable than using traditional debt used within businesses or to purchase physical assets like a home.
6 Equity Matching
For investors with a higher return requirement or risk profile, we can match the volatility of a broad equity markets by scaling the volatility of the diversified portfolio further and capturing an even larger premium.
5 The Diversification Premium
Taking the same level of risk as we would in the 60/40 portfolio, the added efficiency of the diversified portfolio allows us to capture a return premium, which we call the Diversification Premium. This structural premium is at the core of everything we do.
4 Volatility Scaling
If we can scale volatility to the same level of the traditional 60/40 portfolio, we can maintain the efficiency gained through diversification while matching the investor's risk preferences.
We can combat concentration risk by intelligently combining a global selection of stocks, bonds, FX, commodities, and inflation-linked bonds to create a highly diversified portfolio. While the portfolio is highly efficient - more return for each unit of volatility - the return expectation is lower than the traditional 60/40 and likely too low for the majority of investors.
2 Concentrated Equity
Simply increasing equity allocation introduces concentration risk to this asset class and makes the portfolio more sensitive to the specific drivers of stock market returns.
1 The Traditional 60/40
The balanced 60/40 portfolio is an anchor of many investor portfolios. If an investor wants to increase expected returns of a portfolio from this starting point, they will typically add equity exposure.
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