Chemistry of Alternatives

The Elements of Portfolio Construction

Our proprietary Fortified Portfolio Construction process aims to increase return potential without a correlated increase in the level of risk. As you’ll see below, each level of fortification is designed to move up the efficient frontier (enhancing return) without moving to the right (increasing risk). Our portfolio construction process is repeatable and can be applied to any market condition.

4 Levels of Fortification

4-levels-of-fortification-chart
Strategic asset class
diversification
Economic cycle
adjustment
Factor risk
premia
Portfolio management
expertise
Using quantitative analysis, the universe of tradable global assets are distilled into 9 unique asset classes. These 9 asset classes are then combined using proprietary portfolio construction methods to create our strategic asset allocation.
Economic cycle adjustments are made to the 9 asset classes to tactically adapt the portfolio to current economic conditions.
Factor risk premia can enhance returns by providing exposure to unique sources of return.
Expertise, experience and intuitive judgment of portfolio management is applied to generate non-correlated sources of alpha.

Portfolio Construction

A closer look at its formulation

At Picton Mahoney Asset Management, fortifying portfolios with the use of alternative investments and strategies has been our core focus for over 14 years. We have experience managing money – long, short, and hedging positions – through all market cycles. This approach was validated in the financial crisis of 2008 when our hedge fund strategy outperformed its benchmark, the S&P/TSX Composite Index TR.

We’ve implemented the same investment approach since our inception in 2004, honing it over the years and codifying it into a process we call Fortified Portfolio Construction which is discussed in this white paper. Key topics covered include:

  • The behavioural factors behind investing
  • The relationship between risk and return
  • The importance of “quality of returns”
  • The elements of portfolio construction
  • How 4 levels of fortification can optimize risk/return ratio

The Chemistry of Portfolio Construction: A White Paper

The Chemistry of Portfolio Construction - A White Paper - Coming soon