Our portfolio Strategy (Core/Satellite Portfolio Construction)

Three primary sources of risk contribute to portfolio return are the interest rate, equity market, and active. The first two constitute market risk, or beta, meaning risk naturally associated with bond or stock market returns. Active risk, however, comes from the pursuit of non-market-related return, or alpha, through active, skilled portfolio management. Through a Core and Satellite approach to portfolio construction, investors separate these three sources of portfolio risk from seeking additional return opportunities. Investors achieve their desired exposure to equity and bond markets through Core investments — typically US large cap, mid cap equities and fixed income put to work through passive, structured and/or actively-managed strategies. They then pursue alpha opportunities through less correlated Satellite strategies such as emerging markets, high yield, real estate and/or private equity investments..active. The first two constitute market risk, or beta, meaning risk naturally associated with bond or stock market returns. Active risk, however, comes from the pursuit of non-market-related return, or alpha, through active, skilled portfolio management. Through a Core and Satellite approach to portfolio construction, investors separate these three sources of portfolio risk from seeking additional return opportunities. Investors achieve their desired exposure to equity and bond markets through Core investments — typically US large cap, mid cap equities and fixed income put to work through passive, structured and/or actively-managed strategies. They then pursue alpha opportunities through less correlated Satellite strategies such as emerging markets, high yield, real estate and/or private equity investments.

At Think Wealth, we implement the Core/Satellite portfolio construction method using the large cap to mid cap funds and other selected securities based on our multi-stage selection process. The selection process is described in the Investment Selection Criteria section.

Core: In order to minimize the adverse effect of market timing and security selection, Core portfolio is allocated to the selected large to mid-cap fund appropriate for the client's anticipated time horizon date.

Satellite: The remainder of the portfolio is allocated in equal weights to the other holdings (mutual fund, exchange traded fund, and individual securities, etc.)


Investment Selection Criteria

A. 50% of the portfolio is invested in the TDF based on selected large cap to mid cap equity funds:


B. 50% of the portfolio is invested in the funds selected by the selection process below:

     1.ETFs and Mutual funds universe will be screened by the following primary selection criteria:

  • Open to New Investment
  • Low-Cost Managment Cost
  • Minimum Investment of $1,000 or lower
  • AUM of $100,000,000 or higher
  • Category/Holdings by asset class


     2.ETFs and Mutual funds screened by the primary selection criteria will be screened by the                following  secondary selection criteria:

     a. Risk Statistics (3-year, 5-year)

  • α (high)
  • β (varies, depending on the purpose of the position)
  • μ (high)
  • R2 (varies, depending on the purpose of the position)
  • σ (low)
  • Sharpe Ratio (high)


     b. Intercorrelation to the existing positions

  • ρ (low)


     c. Historical Performance Overview

  • Entire History
  • Periods of High Volatility (e.g. 2000, 2008)


    C. Selected funds will be reviewed on a quarterly basis for any changes, using the secondary                selection criteria above.


     a. New position will be considered under the Generalized Sharpe Rule (New position is added           only when inclusion will increase the Sharpe ratio)

 



WE PROVIDE CONTINUOUS PORTFOLIO MANAGEMENT SERVICES TO OUR CLIENTS.

our strategy

THINK WEALTH