First Principles
Asset Allocation
Portfolio returns over the long-term are largely attributed to an investor’s strategic or core asset allocation as opposed to individual security selection (stock picking) which is typically overvalued.
Investment portfolios can be viewed as a collection of market risk factors and exposures that can be accessed through a myriad of passive, active, and hybrid investment vehicles.
Active & Passive
Passive low-cost vehicles lend themselves to more informationally efficient markets which tend to exhibit mean reversion and low manager return variations.
Market Inefficiencies
Structurally inefficient markets afford opportunities for active management to add valuable diversification and excess return to the overall portfolio provided investors have a robust process to identify and evaluate skilled active specialized managers.
