Investment Philosophy White Papers

Innovative financial solutions for a dynamic approach to global investments.

This collection of papers provides analytical background to where we believe traditional investment theory has weaknesses, in the context of actual investor attitudes and market behaviour.

We address two distinct yet related problems. The first two papers consider the implications of investors actually having multiple objectives. The first paper provides the framework for the management of asset allocation, and the second derives the appropriate primary benchmark against which to manage.

One of the key findings is the benefit of adopting a secondary benchmark that is driven by macro-thinking. We believe many investors actually operate to multiple objectives, and therefore as a way to contribute positively to the investment community. We provide the composition of this secondary benchmark as a free service for investors.

The second set of papers – the third and fourth – address the implications of the negative skew experienced in financial markets. Traditional theory does not envisage the existence of skew, and this creates significant problem for investors if the negative skew is not neutralised. In the first of these papers, we identify the problem and where it comes from. In the second, we show that the dominant source of negative skew at a portfolio level is the public equity allocation, in the majority of portfolios.

We believe the neutralising of negative skew is the single biggest unknown problem the vast majority of investors face. Our products are dedicated to helping investors achieving very strong efficiency through neutralising skew and providing strong risk adjusted returns. Our two strategies – the Dynamic Equity Growth Strategy (“DEGS”) and the Global Equity Market Strategy (“GEMS”) – allow investors to choose a means of achieving this that fits with their particular approach to portfolio investment.

In summary, this group of papers sets out:

How we think investors can implement a multi-objective approach to investment, and we support this with our secondary benchmark service at no cost
Why neutralising skew in a portfolio is important and why this is best achieved within public equities. This is turn describes why our business is focused solely on this problem through the delivery of two products.

Introduction to Portfolio Construction Constraints

This paper outlines our innovative approach to portfolio construction. While traditional methods focus on risk management against a single benchmark, we argue for a significant rethink. By starting with client aspirational objectives, we demonstrate how these goals shape specific portfolio forms and mandate constraints. These constraints are crucial for effectively capturing investment manager expertise and translating it into performance that aligns with client objectives.

Extended Insights on Portfolio Construction and Engineering

This paper builds on the concepts introduced in our previous work on Portfolio Construction & Engineering, marking the second installment in our series on investment process fundamentals. Our earlier paper emphasized the importance of engineering to achieve client objectives, advocating for a mandate structure with primary and secondary benchmarks and flexible tracking error constraints.

Agilis Macro: Revisiting Portfolio Efficiency

Investment portfolios often face a hidden challenge: negative skew. This technical issue is seldom discussed but has significant implications. Addressing it requires a fresh perspective.

To understand this better, we need to explore the concept of efficient portfolios and the assumptions they rest on. An efficient portfolio, typically illustrated by an efficient frontier, represents the set of portfolios offering the highest expected returns for varying levels of risk.

Agilis Macro: Addressing Negative Skew in Investment Portfolios

Negative skew in investment portfolios, characterized by higher volatility on the downside, extends recovery times and poses a significant challenge. This paper focuses on practical strategies to mitigate this issue, moving beyond the limitations of diversification.

Agilis Macro: Dynamic Equity Growth Strategy

The Dynamic Equity Growth Strategy (DEGS) builds on our previous work on investment objectives and skew. Key insights include:

Investors often have multiple objectives beyond just return and volatility.
Negative skew, particularly from public equities, poses a significant challenge.
Addressing this skew can significantly improve portfolio performance.

Agilis Dynamic Equity Growth Strategy Introduction

The Agilis Dynamic Equity Growth Strategy (DEGS) aims to achieve double-digit annualized returns with volatility slightly lower than that of equities. This strategy is designed to enhance client outcomes by addressing the “skew problem” common in diversified portfolios, thereby improving absolute return, efficiency, and recovery time. Agilis dynamically allocates to high-performing equity segments and adjusts asset allocation based on macroeconomic views. With a successful 20-year track record in macro investing, this strategy represents the culmination of Agilis’ best investment ideas.