Evidence-based Asset Class Investing
Evidence-based investing is a different and unique approach which provides our clients with the best odds for success. Insights of evidence-based investing comes from Noble Prize winning researchers Eugene Fama and Kenneth French among others. Their research has shown that we can capture higher returns through building portfolios with value stocks. They also found we get higher returns with small-capitalization stocks.
There are no free-lunches in investing. Capturing higher returns is only achievable for those investors committed to the strategy for the long-term.
An evidence-based investment strategy is applied to our clients’ portfolios in conjunction with other financial planning and tax minimization services which helps to add value to the client at each step. Broad diversification and patient, flexible trading leads to lower turnover and costs. Evidence-based investing requires no obligation to replicate a particular commercial index, therefore we seek to maintain consistent risk exposures to small and value factors and exclude companies or sectors that may alter or change that risk exposure. Companies or sectors that may be excluded include:
• Investment Funds (publically traded closed-end mutual funds)
• Recent IPOs
• Share classes with foreign restrictions (i.e. Chinese A shares)
• Companies in extreme financial distress or near bankruptcy
• Merger or acquisition targets
• Highly illiquid companies
Simply put, an evidence-based approach aims to own all of the meaningful stocks in the world, reduce the weighting of some stocks (large, growth, unprofitable), and increase the weightings of others (small, value, profitable).