“Adaptive indexing” best describes the way we structure, build and maintain portfolios on behalf of our clients. We adjust portfolio strategies, positions and holdings based on the shifting momentum of the markets – focusing on new sectors as they gain strength and rotating them out as momentum wanes.
According to Determinants of Portfolio Return, a study conducted by Gary P. Brinson, Brian D. Singer and Gilbert L. Beebower in 1986 (updated in 1991 and 1995), 91% of a portfolio’s volatility is tied to asset allocation. Yet it seems the most time and energy is devoted to choosing individual stocks that may have little long-term impact. That’s why our goal isn’t to pick the right stocks; our goal is to identify sector trends and the best performing assets within those sectors.
Ultimately, it is all about allocating assets properly based on where performance, or momentum, is strongest, and then reallocating or replacing investments as necessary to help ensure long-term success.