Dynamic Portfolios


Chapoquoit Dynamic Portfolios offers a rules-based defensive methodology for creating dynamic portfolios with low risk targets. We do this by using market and macroeconomic factors to systematically change asset allocations. Chapoquoit is a top-down fundamental rules-based methodology. Chapoquoit invests in a wide range of ETFs using only our quantitative factor model.

Chapoquoit Dynamic Portfolios are offered to investors as separately managed accounts. Chapoquoit employs a tactical and purely quantitative investment allocation strategy using a universe of equity, fixed income, and commodity Exchange Traded Funds. The allocations to these ETFs are driven by a number of important market and macroeconomic factors identified by our top down research process.

Using an almost 40 year data history, we have successfully researched the existence of cause and effect relationships between these specific market/macroeconomic factors and the ETF investment allocations. This rigorous out-of-sample research confirms that Chapoquoit Dynamic Portfolios outperformed popular equity benchmarks while delivering bond like risk levels over a 6-8 year market cycle.

Chapoquoit Dynamic Portfolios holds the following tenets as the basis for our investment process:

  • Past returns cannot profitably predict future performance.
  • Using top down market and macroeconomic analysis to control monthly allocations to ETFs is a very effective investment approach.
  • Minimizing downside risk over a market cycle, of 6-8 years targeting the overall return, generates more favorable investment results compared to a buy-and-hold approach.

Chapoquoit Dynamic Portfolios seeks to attain each of the following investment objectives.

  • A very attractive long-term investment return, after fees.
  • Outperform the stock market in equity bear markets.
  • Performance that is strongly uncorrelated with stock market indices and other alternative investments.
  • Minimize the effect of months with negative returns.
  • Portfolio returns above the long-term average for equities, but with bond-like risk.

Chapoquoit’s Dynamic Asset Allocation process is different from any other alternative investment offering because it offers all of the following:

  • A diversified set of ETF investments
  • Patented, top-down fundamental process
  • Completely quantitative and computerized
  • A predefined rules-based methodology
  • A global macro approach
  • Employs macroeconomic data as inputs
  • Based on a linear programming formulation
  • Annual portfolio turnover generally below 40%
  • No technical trading
  • No trend following
  • No discretionary overrides
  • No illiquid investments
  • No performance fee

Chapoquoit Model Structure

Chapoquoit rebalances its portfolios monthly using a set of dynamic allocation control functions that respond to recent changes in market and macroeconomic conditions. The following is an unused example of a typical allocation control function:

t = α + b1 T-Bill Rate t-1 + b 2 GDP t-1 + b3 Housing Starts t-1 +…+b n Money Supply t-1

Each investment in the portfolio has a similar equation. The unknown model coefficients, α and bn, are determined in a way that seeks to minimize portfolio downside risk through a linear programming formulation.

Chapoquoit Dynamic Portfolios offers three separate investment accounts for investors with different levels of risk tolerance:

  • Aggressive Portfolio
  • Moderate Portfolio
  • Conservative Portfolio

Portfolio allocations are redetermined every month. Limits are set on the maximum allocation to each investment. Portfolios are optimized to control Downside Risk. The dynamic asset allocation model seeks to minimize the sum of monthly losses below a target return. This minimization of the semi-deviation is a key feature of the linear programming formulation employed.

Lorem ipsum dolor sit amet consectetur adipisicing elit. A, in!Chapoquoit’s investment portfolios make monthly shifts in asset allocations among more than 25 investments at one time. Because the changes in allocation move slowly, the process could be considered a strategic approach.

Chapoquoit’s three investment offerings each have an optimized asset allocation control function which is used to change the asset allocations in response to changes in the time-varying values of the market and macroeconomic factors.

Our mathematical process ensures that any allocation increase to one investment is exactly offset by an allocation decrease to at least one other investment.

More than a dozen market and macroeconomic factors are used to control the asset allocations to our investment set, including:

  • Equity Dividend Yield
  • Bond Yield
  • Interest Rate Term Spread
  • Interest Rate Credit Spread
  • Macroeconomic factors (ex: unemployment, manufacturing capacity utilization, etc)

Investment sectors are also employed, including:

  • US Stocks
  • Foreign Stocks
  • Long Government Bonds
  • Corporate Bonds
  • Gold Petroleum

The above is an example of a Dynamic Portfolio Allocation over time.

Have a Question?

Click Here