QID provides Risk and Age-based portfolios that can be personally customized and have ability to adapt to changing markets
Quantitative Investment Decisions (QID) provides investors the flexibility to select predetermined diversified strategic portfolios on Risk- or Age-Basis. Combinations of mean variance optimization models determine the allocation to each of the four asset classes: U.S. equity, Non-U.S. equity, fixed income, and alternative asset classes. Strategic Portfolios are designed to reallocate to the default allocation on a set time frame. But as we all know; each investor has their own set of financial and personal considerations so that a handful of portfolios does not meet everyone’s personal needs. Our proprietary questionnaire provides investors the ability to customize their asset allocation based on their personal financial situation.
In addition, investors have the option to select a tactical overlay to the strategic allocation. The tactical overlay is designed to adapt to changing environments. For instance, the default equity allocation for a moderate risk portfolio is approximately 60% U.S. and 40% non-U.S. QID models determine the relative attractiveness between the two asset classes based on valuation, economic factors as well as technical indicators. The weight of total equity exposure for the U.S. allocation is between 80-40%, whereas, the non-US can be between 60-20%. Fixed-income and alternative asset classes can be considered the barbell approach for inflation. A lower inflationary environment is typically positive for fixed-income, whereas, higher inflationary periods are typically positive for alternative asset classes such as agriculture, precious metals and energy. We include REITS as an alternative sector and can be considered a fulcrum between the two asset classes as it tends to benefit from both environments. The default moderate risk allocation between fixed-income and alternatives is 75-25%. Based on a proprietary model, the allocation weights between fixed-income and alternatives can range between 75-25% to 25-75%. With many investors concerned with the low level of interest rates, the ability to switch part of the fixed-income allocation to alternatives would appear appropriate as supply/demand factors tighten. To date, the Fed has been very accommodative with its low interest rate environment to stimulate demand in an economy that seems to be crawling along and constantly showing signs of slowing. Given that the defensive position in the alternative asset class is fixed-income, in a deflationary scenario it would be 100% in Treasuries/cash. In an inflationary environment, the likelihood is that we would be 75% invested in commodities and the 25% position in fixed-income would most likely be in cash, avoiding the loss from longer term fixed-income instruments and increasing in returns as short rates rise.