A special announcement from The Intelligent Allocator:
For those of you who have been following along with us at The Intelligent Allocator, you may have noticed that while we have continued to update the Alpha Momentum model twice a month, we have not published a long form article in some time.
The reason is that we have been doing R&D to build a comprehensive asset management solution. While the Alpha Momentum model is a very strong strategy, astute investors know that US equities should only comprise a portion of a well-rounded portfolio.
A well-rounded portfolio should include exposure to foreign equities, commodities, and various fixed-income instruments, in addition to US equities. To that end, we have been working with our friends at Fortuna Investors to build comprehensive portfolio solutions.
Fortuna Investors is an investment firm based out of Miami Beach, FL specializing in an asset management strategy called “Global Tactical Asset Allocation,” or GTAA for short. GTAA is a well-established investment style that systematically allocates among diversified asset classes, with the goal of generating strong, consistent returns with low risk regardless of the economic environment. Like the Alpha Momentum model, it is fully quantitative and highly attuned to the downside, which is actually far easier when you are working with the whole world of uncorrelated asset classes, rather than just US equities and cash.
Our relationship with Fortuna was born out of a mutual passion for systematic, data-driven investing, with the goal of significantly outperforming more mainstream investment methods. As we collaborated on system research and development, we found that we had independently developed complementary investment methods, and that in combination, we could create something truly special.
Fortuna’s approach to GTAA harnesses global trends across a diverse set of asset classes. This is a far superior way of achieving diversification, risk mitigation, and strong performance than the conventional portfolios with static allocations used by most advisors. As a fully-quantitative strategy, GTAA can be stress-tested and examined over the long sweep of market history, giving investors confidence in its robusticity, without any need for economic or market forecasting.
Here on The Intelligent Allocator side, our concentrated, risk-governed equity momentum portfolios harness trend and momentum in US stocks. This is a far superior way of achieving diversification, risk mitigation, and strong performance than passive buy & hold or mainstream active fundamental strategies. Concentrated systematic equity momentum strategies have the potential to generate substantial absolute and risk adjusted returns, as showcased via our Alpha Momentum Strategy.
While GTAA and equity momentum strategies can each stand on their own, when combined, they create the potential for truly stunning returns. This is because GTAA and equity momentum strategies generally have a low correlation to each other.
One of the core tenets of modern finance is diversification. By combining asset classes that move in different ways at different times (low correlation to each other), an investor is generally able to achieve higher returns with lower risk than by investing in any single asset class. Even simple, static diversification produces higher risk-adjusted returns than any single asset class.
While most investors understand the benefits of stock or asset class diversification, the majority of investors fail to leverage system diversification. System diversification, much like asset class diversification, can enhance returns while reducing risk simply by using a portfolio of uncorrelated strategies (in this case, GTAA and equity momentum).
Over the last several months, The Intelligent Allocator and Fortuna have taken the best of our respective frameworks and brought them together to create a comprehensive, turnkey asset management program that is suitable for an entire portfolio allocation. We call this solution the Global Enhanced Alpha strategy, as it is a total solution designed to capture alpha (outsized returns relative to risk) across the whole world of asset classes. There are four versions of the strategy, each designed to cater to an individual investor’s unique risk profile (Ultra, Aggressive, Moderate, and Conservative).
We invite you to take a look at what we’ve built, a summary of which can be found here: http://fortunainvestors.com/download/486/
We welcome your comments, questions, and feedback on this new suite of strategies.
As for The Intelligent Allocator and the Alpha Momentum Strategy, for the time being we remain officially independent of Fortuna. The Intelligent Allocator is not an investment advisor, and we will continue to blog and maintain the Alpha Momentum Strategy for the foreseeable future. But we encourage you to investigate how our approach fits into a comprehensive global portfolio, and to make sure that all of your investments are managed with the same rigor as your stock selections.
Thanks for following along!
-The Intelligent Allocator