SCI Active Allocation

The SCI Active Allocation strategy uses the latest advancements in risk and return measurement statistics. More informative than standard deviation and risk adjusted return ratios, these next generation metrics of post modern portfolio theory provide insight into magnitude and frequency. They are more stringent because active managers are penalized more severely for their downside performance than they are given credit for exceeding a desired level of return.

Advancement in Portfolio Construction using Post Modern Portfolio Theory

We’re using a unique process to choose the active managers that can provide superior returns over passive investments.…

First of its kind asset allocation strategy based on Nobel prize winning research.

Offering 5 model portfolios, rebalanced quarterly with varying amounts of exposure to equites and fixed income.

Selects from active fund managers, unless passive ETFs are more efficient, to provide upside alpha exposure while offering downside protection.

Diversified across multiple asset classes providing exposure to different risk and return drivers in up markets while maintaining a buffer in down markets.

Utilizes lower cost investments and $0 transaction fees.

We measure how often and how far above a return objective a funds returns are likely to occur. Upside Potential, a term coined by Nobel Prize winner Daniel Kahneman, captures investors’ perception of reward concerning gains as opposed to risk concerning losses.

Kahneman, a behavioral psychologist was influential in discovering the behavioral components present in individuals when making decisions in an environment of uncertainty. Discovered through his work on prospect theory, investors are more concerned at the margin with losses rather than gains.

We penalize managers twice as severely for below benchmark performance using a measure of portfolio risk developed through the work of Peter C. Fishburn, a John von Neumann Theory Prize recipient who has made significant contributions to the foundations of making choices under uncertainty.

By defining risk as not achieving a portfolio’s return objective, it distinguishes between good returns, those greater than the desired return objective, and bad returns, those below the return objective. Only the latter represents risk and the further the returns fall below this level the greater the risk.

Bootstrapping is any test or metric that relies on random sampling with replacement. Bootstrapping allows for assigning measures of accuracy (defined in terms of bias, variance, confidence intervals, prediction error or some other such measure) to sample estimates. This method allows a sample estimate to have the same predictive and descriptive characteristics of the population set.
Bradley Efron’s work in this area, winning him a National Medal of Science award, has been heralded as groundbreaking for eliminating beginning and endpoint bias through the use of random resampling. This allows for a better approximation of what could have happened rather than what did happen from the historical data sampling.

Advancements made notable by Aitchison and Brown in this area enhances the mean variance two parameter model by measuring the magnitude and frequency that a manager out/under-performs their benchmark to reduce as much uncertainty as possible in the portfolio. Their work allowed for the incorporation of negative returns in the lognormal distribution.

 

Alpha is a measure of the active return on an investment, the performance of that investment compared with a suitable market index. A risk adjusted measure of the value added by a manager over and above performance that could have been achieved with its “style benchmark”. A style benchmark is a blended benchmark representative of the manager’s style blend as determined by Sharpe’s style-based analysis. The style benchmark serves as a more precise measurement for identifying manager skill versus market activity or style drift.

Rigorous, Stringent, Precise, and Objective Research and Analysis…
…Resulting in 5 exclusive model portfolios.

Take a closer look at our model portfolio risk distributions and capital market allocations. Our policy allocations remain very consistent from quarter to quarter but can be adjusted to accomodate changes in our outlook of the future. Also, in times of stress our policy has flexibilty to increase the allocation to cash as necessary.

 

 

On a scale from 0 to 100, our model portfolio risk distributions start just under 30 for our conservative portfolio and just over 70 for our aggressive growth option. Our Riskalyze risk assessments will map an individual risk tolerance to one of our 5 model portfolios.

Broad allocations to bonds / stocks start around 55% / 45% in the conservative model and move to approximately 80% / 10% in the aggressive growth model.

Conservative

 

Moderate Conservative

Moderate

Moderate Aggressive

Aggressive Growth

Our Allocation Process

1. Discover your risk objectives

Investors go through a discovery process to identify your risk tolerance, cash flow and liquidity needs, and future goals. The result of this process calculates your risk number from 0 to 100, which is used to map you to the appropriate Salt Creek Investors model portfolio.

2. Evaluate and measure risk and return

Using our extensive investment data, research and proprietary analysis, we are able to evaluate and measure potential investments and its possible effect on your overall portfolio. Approximately five thousand actively managed mutual funds are evaluated quarterly for consideration in your portfolio.

3. Create and implement our investment strategy

An Investment Policy Statement presents you with a proposed Salt Creek Investors model portfolio specifically aligned for your risk tolerance and future needs. We will maintain your portfolio to the model allocation, adjusting the investments quarterly back to the model allocation.

4. Monitor your investments

On an ongoing basis, we assess and monitor your investment allocation along with the fund managers to make sure your portfolio remains compatible with your objectives. As the markets fluctuate or your needs evolve, we may rebalance your portfolio or change your portfolio investment model allocations to help enhance portfolio performance. Performance reports are generated monthly to keep you up to date on how we are doing.