When attempting to explain our approach to clients, we like to revert to simple to understand examples. Our whole approach builds on “risk indexes” created per market. The markets we focus on – and to which our dynamic asset allocation methodology allocates – is to the major global stock and bond markets, as well as Commodities. To each of these markets we focus on creating risk indexes which identify not when markets are a “good buy” or a “strong sell” but instead attempt to identifywhat the major structural forces that impact asset markets are saying.
It is similar to the temperature gauge in your car. When driving, you want to see the temperature gauge ”right in the middle”. In other words, not too hot and not too cold.
Our risk indexes function in a similar way. The combination of indexes create cyclical indexes which evaluate when markets are “high risk”, “low risk” or in “equilibrium”.
“Right in the middle” for our indexes would describe an equilibrium state. A high risk index reading (essentialy a combination of indicators that are 1 standard deviation or more away from their mean) implies that markets are “at risk” of a correction. The size of the correction is determind by how “high octane” the market is of course. A high risk index reading for US bonds would imply a much smaller correction than a high risk index reading for US stocks. A low risk index reading implies that structural forces are pointing to a positive environment for the market. In other words, the market is a “low risk buy”. This does not imply that markets are immediately ripe for a bull market, but it does imply that the combination of indicators selected point to substantially higher market values from the current readings.
We hope you enjoy reading our blog. Please note: Our web application is set to be launched towards the final weeks of January. We are currently in the final stages of development. Our platform will be an invaluable tool for any portfolio manager and we are so excited that you are a part of it.
