Dynamic Asset Allocation Investment Process
Dynamic Asset Allocation
Investment Process
- Select the most effective set of ETFs for Chapoquoit Dynamic Portfolios.
- Select market/macroeconomic factors that influence the selected ETFs.
- Set practical asset allocation limits.
- Revise the optimal allocation control function coefficients monthly.
- Analyze a 20-year performance of the model on an historical research basis.
- Employ our patented dynamic asset allocation process investing in equity, commodity and fixed income ETF investments.
- Generate adaptive asset allocation control functions from monthly market and macroeconomic factors based on data beginning in 1973.
- Apply the optimal control functions to obtain next month’s allocations.
- Control historical monthly portfolio performance, not individual investment averages.
- Create three separately-managed account levels of risk control: Conservative, Moderate and Aggressive.
- Repeat this iterative investment process on a monthly basis.
Model Driven Investment Process with No Investment Discretion
Example of a Set of Simple Asset Allocation Control Functions
- Alloc Stocks = 13+10 DivYield - 8 BondYield
- Alloc Bonds = 19 - 6 DivYield + 7 BondYield
- Alloc T-bills = 68 - 4 DivYield + 1 BondYield
Interpretation of Example
- When the Dividend Yield changes by 1 unit:
- The allocation to Stocks goes up 10%,
- The allocation to Bonds goes down 6%,
- The allocation to T-Bills goes down 4%,
- When the Bond Yield changes by 1 unit,
- The allocation to Stocks goes down 8%,
- The allocation to Bonds goes up 7%,
- The allocation to T-Bills goes up 1%,
- Allocations sum to 100 for any value of DivYield and BondYield.
- Chapoquoit is a purely quantitative approach.
- Asset allocations are adjusted once a month.
- Changes in macroeconomic and market factors control allocation changes.
- Discretionary overrides are never employed.
- Chapoquoit seeks to minimize absolute losses over market cycles.