We specialize in global macro portfolio construction utilizing a top down approach. Our approach to asset management is sophisticated, but our process is simple. Most importantly, we apply all of the basic building blocks of efficient portfolio construction by utilizing diversified ETFs and index funds, maintaining highly tax efficient accounts and maintaining a very low fee structure. However, unlike traditional procyclical indexing approaches we utilize “countercyclical indexing” which means that we are reducing behavioral biases and exposure to the riskiest assets at the riskiest points in the market cycle.
1. A Global Macro Approach
Everything we do begins with understanding the macroeconomy and monetary system at its highest levels. This sophisticated set of understandings provides the foundation for our approach and allows us to more easily digest the micro picture.
2. Understanding How Our Clients Perceive Risk
The most important thing we do is work with our clients to ensure that they understand financial risk and how it applies to their portfolio. We profile all of our clients to understand how they perceive risk and then customize portfolios by applying the concept of the “Total Portfolio” to their particular approach. This allows us to align the interests of the client with the way we manage their assets.
3. Countercyclical Indexing Strategy
Traditional portfolio theory says that we should rebalance a portfolio on a procyclical basis to account for deviations from a static allocation. For instance, the 60/40 stock/bond portfolio will tend to become unbalanced as the business cycle evolves and stocks outperform bonds. If we rebalance back to 60/40 late in the business cycle then this doesn’t account for the fact that stocks become riskier late in the business cycle after they’ve risen in price relative to bonds. In other words, your portfolio is overweight the riskiest assets at the riskiest times in the business cycle.
Orcam’s Countercyclical Indexing approach is designed to adjust portfolios on a countercyclical basis to account for the dynamism of risk within a portfolio. This helps to keep the investor’s risk profile better aligned with the portfolio’s exposure to changing asset class risks over the course of the business cycle.
We monitor the portfolio for changes in risk during the business cycle, rebalance and manage the portfolio to ensure it is as efficient as possible over the course of the business cycle. Throughout the business cycle we are constantly updating our financial models to account for changes in the probability of tail risk events and other inefficiencies that might alter how our clients perceive risk. This countercyclical approach allows us to be largely inactive (therefore fee and tax efficient), but more aggressive when the business cycle is probable to be in expansion mode and less aggressive when the economy is at a high probability of contraction. This adaptive tilting of the portfolio at points in the cycle allows us to align the risks of our clients with the dynamic changes in the business cycle.
4. Maintaining a Low Fee and Tax Efficient Process
Everything we do is designed around maintaining a fairly inactive portfolio approach in order to ensure that our fees remain low and our portfolios remain efficient. However, we don’t implement your traditional passive indexing approach. Instead, we implement portfolios by taking a countercyclical view. Unlike static procyclical indexing strategies (which just go up and down with the market and always rebalance back to the same risk exposure) our countercyclical approach rebalances in such a way that we will actually reduce exposure to certain asset classes when the risk of permanent loss increases late in the market cycle. We do the heavy lifting and adjusting during the business cycle so you can go about your life knowing that financial experts are watching over your savings while you do what you’re best at.