Our robust and effective investment process relies on the two complementary asset management principles known as MOMENTUM and RISK PARITY:
Momentum + Risk Parity
Momentum uses price trend to select the best-performing assets over a given period of time (3 - 6 months)
Risk Parity, an asset allocation approach that balances risk across a portfolio, is key to our overall investment process.
MOMENTUM: ASSET SELECTION
A blend of 3–6-month trends is used to isolate an optimal number of the top-performing assets from an index or broad set of asset classes. This quantitative approach is applied to a limited number of stocks within an index like the S&P500 or across a broad range of asset classes including commodities, real estate, fixed income, equities, cash, and other assets in the form of liquid ETFs. We have found this process to be very robust across multiple assets, settings, and timeframes.
RISK PARITY: A BALANCING ACT
We use Risk-Parity to balance risk across a portfolio by weighting each holding based on its unique downside historical volatility and how it behaves relative to other holdings within the current portfolio. Risk Parity has been shown to add a significant increase in the risk-return profiles of both equity-only portfolios and multi-asset class portfolios across a broad range of settings and variables in practice and academically.
Momentum = Multiple Period TREND
We believe persistent patterns and anomalies in the financial markets can be used to generate excess investment performance and reduce downside risk.
In financial markets, momentum theorizes that assets exhibiting the strongest recent performance are most likely to continue to outperform in the subsequent period. Acanto manages two types of portfolio strategies that are based on this principle. The first is Acanto’s “US Equity Top 10” which selects the 10 best-performing individual equities from the 100 largest stocks in the US market by Market Cap. The second is Acanto’s “All- Asset Adaptive Allocation”, which selects a limited number of the best-performing asset classes including stocks, fixed income, cash, commodities, real estate, and other assets in the form of highly liquid ETFs and REITs. Finally, positions in both strategies are weighted using Risk Parity to balance volatility and avoid concentration of risk.
Risk Parity = Dynamic Weighting of Assets
"Momentum is pervasive: the academic literature shows the efficacy of momentum strategies across multiple time periods, in many markets, and in numerous asset classes."
Journal of Financial Economics, Tobias Moskowitz (Yale University) & Kent Daniel (Columbia University)