Nobel laureate Harry Markowitz wrote “…a rule of behavior which does not imply the superiority of diversification must be rejected.” Historically, a globally diversified portfolio of stocks and bonds outperforms a US-only portfolio with less volatility. Our investment portfolios capture the value of diversification by holding securities that behave in different ways, such as companies of different sizes, sectors, and countries.
While no one can predict future returns, it is foolish to leave opportunities on the table. Decades of research have shown that historical asset prices can be explained by “factors”. Factor-based investment strategies target securities with traits that have historically enjoyed higher returns, lower risk, or a combination of the two. These include factors such as quality, value, momentum, size, and low volatility. We design investment portfolios to outperform the benchmark based on evidence, not “gut feelings”.
Though factor-based investment strategies have outperformed the market in the long-run, they can underperform in the short-term. Our investment portfolios adopt a multi-factor approach, maximizing diversification across factor-based investment strategies and increasing the likelihood of outperformance.