Portfolio Construction and Management Process
At Meyer Asset Management, our staff work closely together in order for our clients to achieve their financial goalｓ. In order to do so, it is very important for us to understand our clients’ needs, so that we are able to construct a portfolio that meets their financial goal. Our fundamental market research having long term perspective makes it possible to optimize the efficiency of a portfolio by reducing risks without sacrificing a return. It is also important for our clients to have a definite financial plan and goal so that we can create a tailor made portfolio.
Need for diversification
In the world of investments, it is expressed by a proverb that “don’t put all your eggs in one basket.” By diversifying into different asset classes and investments, you can “spread your eggs around” to protect against any losses.
Asset Diversification
It is possible to increase your portfolio's return by only investing in equities that can be highly volatile and risky. An investment should not simply be speculative, but rather it should be planned. It is possible to reduce the overall volatility or risk of your portfolio by investing in lowly correlated assets; such as equities, bonds, commodities, Real Estate Investment Trust (REITs) (=> Link to the page on REITs) and land banking (=> Link to the page on Lang Banking).
Geographical Diversification
It is necessary to diversify within regions in which you invest in order to decrease or minimize the country risk. Geographical diversification is possible by investing in countries that have low correlation among them and by investing in different financial markets in the world. A fund company analyzes the current market trends, the global economy and forecasts the market before making an investment decision. Some fund companies monitor the markets around the world by using specialized computer software.
Traditional investments
Traditional investments include stocks, bonds, indexes, currencies, domestic mutual funds, (=> Link to the page on mutual funds) offshore funds. (=> Link to the page on offshore funds) Among those investments, there are diversified investments by global area and industrial sector.
Alternative investments
These investments include hedge funds, (=> Link to the page on hedge funds) funds of funds, (=> Link to the page on fund of funds) REIT (=> Link to the page on REITs) and commodities, which have a low correlation to a traditional portfolio that consists of only stocks and bonds.
Asset allocation
Through the process of asset allocation, you must take into consideration macroeconomic conditions, analysis of a capital market, intelligence related to investment products such as an expected return, risks and correlation with other investment products. It is equally important that we fully understand financial goals, investment terms, risk tolerances of our clients. For example, it is often mistakenly assumed that a portfolio comprised of 100% bonds is very conservative and has very little risk. However, if you limit yourself to low-risk securities, you'll be limiting yourself to investments that tend to have low rates of return. So what you really want to do is include some higher growth, higher risk securities in your portfolio, but combine them in an efficient way. The result should actually provide an investor with increased returns for slightly less risk.
A traditional portfolio
A traditional portfolio is the one that invests in stocks and bonds whose prices may go up and down by market trends.
- Total return：225.3%
- Annualized return：7.5%
- Annualized volatility：8.7%
- Worst draw down：-23.7%
- Sharp ratio: 0.36
An enhanced portfolio with alternative investments
In addition to traditional investments, it can be achieved to reduce a risk without sacrificing return by including alternative investments due to their low correlation with traditional portfolios.
- Total return：253.9% > improved by 28.6%
- Annualized return：8.1% > improved by 0.6%
- Annualized volatility：7.5% > improved by 1.2%
- Worst draw down：-19.4% > improved by 4.3%
- Sharp ratio：0.47 > improved by 0.11%
An efficient portfolio
Efficiency means reducing risk without sacrificing return. An efficient portfolio is a portfolio which takes into consideration correlation between investments in order to maximize returns while reducing a risk.
The efficient frontier is the curve that runs along the top of the achievable region. Portfolios on the efficient frontier are optimal in both the sense that they offer maximum expected return for some given level of risk and minimal risk for some given level of expected return. Any portfolio plotted on the curve is an efficient portfolio. Any portfolios that fall below the curve are not optimized portfolios because they higher risks and lower returns.
