ISA portfolios are designed to help investors navigate significant and unstable movements in financial markets to obtain potentially increased returns. Portfolio results are achieved through disciplined risk management, situational awareness, global diversification and dynamic asset allocation.
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1. Capital Preservation
On a long term basis and throughout all of history, stock returns are more highly correlated during volatile market downturns than during market upturns, exacerbating the risk consideration for equity investors.
U.S. EQUITY MARKET TOTAL RETURNS, BY STYLE*
*From market peak to bottom(October 2007 through end March 2009)
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1. Capital Preservation
In equities, the case for dynamic asset allocation vs. traditional diversification is perhaps best punctuated by the new reality that growth stocks are priced the same as value stocks.
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2. ISA's Multifactor Risk Management
Simple Classification
Risk is assessed from
the interactions
between three
groupings of factors:
Behavioral, Catalyst,
and Technical.
Rigorous Analysis
The causes of declining
markets are multi-faceted;
they are not influenced by a
singular factor.
ISA algorithms analyze
dimensions of 33 sub
factors, their interactions and
the extent of their
determination on market
returns.
Timely Execution
Risk factor data are used to
determine the optimal
portfolio composition for
the prevailing market
environment, while also
monitoring the current
portfolio’s susceptibility to
market risk.
By managing the exposure of the portfolio to well understood risk factors, capital can be protected from downward trending markets before it is too late.
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2. Multifactor Risk Management
When markets turn negative, the shift in sentiment is reflected not only in the prices of stocks, but it is often preceded by shifts in the attitudes of market participants, transaction data, and world events.
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2. Multifactor Risk Management
Technical risk factors monitor the key price and time relationships of money flow between global institutional money managers and the investing public.
Investors respond to each others' actions while being influenced by specific expectations and
predictions of
market prices. The historical transactions help to form perceptions of overbought or oversold
levels. When live
transactions approach previous levels, common technical indicators such as moving averages,
mean reversion, and support or resistance become prominent influencers.
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2. Multifactor Risk Management
Understanding risk factor interactions is as important to decoding the conditions that lead to market turbulence as understanding the factors themselves.
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3. Situational Logic
Situational logic guides the algorithmic
calculations of how changes between risk
factor interactions are transmitted to and
from financial markets. Situational logic
improves upon a "black box" only approach
by seeking contextual answers to the
questions most relevant to effectively
managing an investment portfolio based
on what is happening in the market right
now versus what happened in the past.
Situational logic helps by selecting
the most relevant factors and allows
for a more thorough understanding of
the portfolio's exposure to different
variables, which impact risk factors at
different times and in different
ways, allowing for analyses that are
more precise and lead to better-
informed investment decisions.
Risk must be understood in the context of probability. This understanding can only be achieved with a firm grasp of the factors relevant to the present reality.