Evolution of Modern to Post-Modern Portfolio Theory
Differences between Modern and
Post-Modern Portfolio Theory
Post-Modern Portfolio Theory focuses on the
investor's Desired Target Return or DTR
A Visionary Investment Firm
We offer sound methodologies for institutional and individual investors to define their financial goals and arrive at asset allocations relevant to those goals.
We help with the implementation of investment programs through an objective investment approach that:
- Focuses on identifying the return needed to achieve specific investor goals
- Optimally blends active and passive investments to deliver the appropriate asset allocation strategy needed to achieve the investor's financial goal
- Systematically adjusts to changes in market conditions or in investors' financial profiles
- Is fully transparent
Benefitting from Academic Advances
Advancements achieved in Post-Modern Portfolio Theory (PMPT) have improved how investors define their investment objectives, portfolio construction, active manager evaluation, and optimized blending of active and passive management investment vehicles.
These advancements led us to create the Desired Target Return (DTR) methodology and DTR Navigator. Other innovations are in progress. Dr. Frank Sortino tested and refined the DTR methodology over two decades at the Pension Research Institute. The quantitative methods employed are based on the groundbreaking work of some of the leading experts in Investment Theory. Frank has authored many insightful articles and books on DTR and managing risk.
Academic insights inform our investment approach. Through a rigorous, objective and systematic process, we select a combination of active and passive investments that potentially can add value and reduce costs. We customize programs to investors' real needs.
Asking the Right Questions
DTR is the return that an investor needs to achieve a designated financial goal in the future.
Whether an institutional investor such as an endowment, foundation, defined benefit plan, corporate fiduciary, or an individual participant in a 401(k) plan, every investor has a specific need or goal for their assets. The need can be for an endowment spending program, retirement income, or benefit payments. When developing any investment program, it is imperative that the investors' needs and goals are the focal point. The foundation of our methodology is the Desired Target Return. It is the return that links the investors' assets to the goals they are striving to achieve over a defined time horizon.
By focusing on where investors are and what they are trying to accomplish, we help investors objectively define their DTRs and build investment programs to achieve the DTRs. Although there is no guarantee that the return needed to obtain the financial goal will be achieved, investors know where they are going and what they need to get there. Investors no longer have to struggle to respond to questions about their comfort level with downside risk or what they believe inflation will do. They can focus on the right question – what are their desired target returns?
Understanding Real Risk
Risk is the failure of an investor to achieve the DTR necessary to fulfill the designated financial goal.
Risk is not market volatility. Risk is not related to a market index or benchmark. Risk is when an investor is unable to fulfill the defined financial goal.
Providing Objectivity and Adaptability
The appeal of our approach lies in its objectivity and adaptability.
An essential core of our approach is that decision making is based on objective needs versus subjective preferences or forecasts. Estimating progress toward an investor's DTR is much more reliable than estimating expected returns on stocks or bonds, or forecasting other economic data.
Our implementation process is similar to pilots checking their positions often to make the necessary adjustments to get to their destinations. DTR Navigator provides a continuous position check for investors. It measures an investor's progress toward designated financial goals, and systematically adjusts asset allocation for any changes in the investor's situation or in market conditions. Each investor's DTR is periodically recalculated to determine if a change in asset allocation is appropriate. Managers are evaluated quarterly to ensure they are still adding value.
Partnering With Experts
Our role is to work with consultants, financial planners, plan sponsors and trustees to define desired target returns, and optimally build and implement investment programs as defined by the investors' goals.
We seek to improve investors' chances for success by tailoring each portfolio to what the investor really needs. We welcome the opportunity to collaborate with you.