ASSET ALLOCATION
Cardinal Point approaches investing from a scientific perspective. We leverage Modern Portfolio Theory, using mean-variance optimization to help put together the most efficient portfolio allocation possible.
We approach investing from a scientific perspective. We leverage academic research, starting with the pioneering work done by Dr Harry Markowitz, who won the Nobel Prize in 1990 for Modern Portfolio Theory. Markowitz’s now well-known theory uses mean variance optimization to help put together the most efficient portfolio allocation possible, taking into consideration not only the expected returns and volatility of asset classes, but also how the different asset classes covary with one another.
Professors Eugene Fama and Ken French put forth the notion of premiums within different types of stocks with their research on value and small companies. Their work showed that by tilting a portfolio towards stocks which were trading on a cheaper relative basis to their peers, or were smaller, unproven companies, investors could receive positive expected premiums compared to the market over the long term. Later work by others showed similar results when sorting companies by momentum or relative profitability. Sorting stocks in a quantitative manner like this is often known as factor investing or smart beta.
We build our asset allocations by looking first at your desired risk tolerance and risk capacity and then applying academic research to determine first, the balance of stocks and bonds in your portfolio and then the composition of the stock and bond portions. In practice this is done so utilizing a Core and Satellite approach.
Core Areas
This approach assigns the largest weights to those core areas of the market such as:
- US Stocks
- Canadian Stocks
- International Stocks
- Investment Grade bonds
Satellite Positions
We then add on smaller satellite positions with the goals of either higher expected returns or enhanced diversification. Examples of these positions include securities targeting:
- Factor premiums, such as Value, Small, Momentum, or high Profitability stocks
- Low Volatility Stocks
- Real Estate Investment Trusts
- Emerging Market Stocks
- International Bonds
- Market Neutral Strategies
- Commodities
OUR RECENT PUBLICATIONS
Terry Ritchie on Unraveling Cross-Border Financial Planning
Snap Projections, a financial planning software company, recently featured Cardinal Point’s Partner and Director of Cross Border Wealth Services, Terry Ritchie, on their Growing Your Financial Advisory Practice podcast. Given Terry’s more than 30 years of experience in cross-border financial, investment, tax, and estate planning, it’s no surprise that Snap Projections chose to tap into his insight for this primer directed at financial planners who want to serve US-Canada clients.
Sweeping New Changes to U.S. Based Retirement Accounts in 2020
Terry Ritchie featured in article, “Could cross-border partnerships be the key to serving ex-pat clients?”
In today’s increasingly mobile society, it’s not that unusual for people to give up residency in their nation of birth in order to work or retire in another country. In fact, according to the United Nations Department of Economic and Social Affairs, there were an estimated 271,642,105 ex-pats around the world in 2019. But what does this globetrotting mean for the financial professionals who advise them?