We believe investors need to be prepared for a variety of scenarios when making one of the most important investment decisions, setting their strategic asset allocation. We don’t believe that high school statistics of mean and standard deviation alone are enough to make sound investment decisions. We need to understand different market environments and account for stress scenarios that we have not necessarily witnessed in financial markets. 

The sophistication of our framework allows us to dive deeper into risk and return with full and complete distributional outcomes.

Our asset allocation framework starts with the investor circumstances, risk tolerance and concerns. We then combine market data and in-house research in order to simulate 1,000 scenarios for each asset class for every year we forecast. Each simulation is adjusted for inflation, fees, tax and withholding tax to estimate the real net returns an investor can expect. The results of our calculations can be illustrated and explored in real-time through our dynamic charting studio. 

We are proud to use Financial Canvas, software that’s purpose built to create and run sophisticated actuarial and investment models.

Financial assets behave differently in different market environments. To capture these shifts in characteristics we have constructed our model to account for different environments. Importantly, it also captures the conditional probability of what environment occurs next depending on what environment we are in now. A bit like a weather forecast, just built for financial markets.

We can learn a lot from history when it comes to investing but one thing we do know for sure is that the next financial crisis will be unexpected. Our model features predictive market stresses that may not have occurred in the past. Examples are global warming, a deflationary spiral or a haircut to US government bonds. This installs some appreciation for the unpredictability of financial markets. We are also able to allow our clients to include their own potential concerns and stress scenarios.