Investment Management

There are many different approaches to investing. However, we use only unbiased, empirical and statistically significant evidence to construct globally diversified portfolios.

We recognize that a clear, consistent, and quantitatively-driven investment approach that removes speculation from the investment process has produced results that are consistently superior to other methods.

Rigorous independent testing and advances in economic science have confirmed that over 95% of investment return variation is driven by certain identifiable factors shown in the table below:

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The factors that drive returns can be thought of as investment dimensions that have rewarded investors over time. What makes them different from all other investment techniques is that they have been persistent through time and pervasive across markets and verified to a high degree of statistical certainty.

When it comes to investing the single most important question you can ask is whether or not your portfolio is precisely positioned to capture the dimensions of higher expected returns.

Factor Loading

Capturing the Dimensions of Higher Expected Returns

Back in 2005 the factor-loaded stock portfolio (i.e. the DFA US Equity Balanced Strategy shown above) exhibited an "Expected Premium over the Stock Market" of 3.99% over the prior 78 years. This is technically not a prediction of what to expect going forward, it's simply a statement saying "this is what happened." It's up to us to determine what the data is trying to tell us, if anything, regarding what might happen in the future.

Due to the high degree of statistical significance of the Market Factor, Size Factor, and Book to Market Factor (all three t-stats are well above 2.00), we believe the data is clearly telling us that there is potentially extra reward available to investors for taking on additional compensated risk (i.e. loading up on factor-based risk).

How has a basic factor-loaded strategy actually performed over the years relative to a total stock market index? (See the table below.)

Advantage to the Factor Loaded Strategy 4.50% -0.60% 3.10% 3.10% 2.10%

Over time, an excess return premium has in fact been realized consistent with what historical regression models have suggested.

Since there are few guarantees in investing and we can't predict the future, we use factor-based investing to put decades of scientific evidence on our side. The science suggests that it's extremely important to capture the dimensions of higher expected returns that the past has hinted to us.

Portfolio Construction Overview

Thoughtful exposure to the factors that drive returns provides you with the greatest chance at protecting principal and producing income while achieving enough growth to stay ahead of inflation and taxes.

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Call us at (949) 648-8575 to discuss how our empirical approach to portfolio management can benefit you.