Firm’s Research Concludes That Optimizing for Diversification Outperforms Traditional Risk ApproachGravity Investments (Gravity), a premier financial engineering firm responsible for the Gsphere visual asset allocation platform, today issued a paper on portfolio optimization and the comparative value of optimizing specifically for diversification.The paper, entitled How True Diversification™ Preserves Capital, concluded that optimizing portfolios for diversification provides a positive impact to bear market returns at entirely no cost to bull market returns, resulting in dramatically better performance across a full market cycle. Diversification, not risk, is thus warranted according to Gravity as the focus of portfolio optimization for asset allocation.“We’ve known for some time that True Diversification is a primary enabler of achieving higher returns,” said James Damschroder, Founder of Gravity Investments and the firm’s chief financial engineer. “Now we know precisely why. With True Diversification, there really is such a thing as a free lunch.”Gravity conducted research on 95 actual Registered Investment Advisor portfolios in place between the years 2002 and 2009. The firm examined the portfolios across three time periods--bull market, bear market, and the full cycle, grading each portfolio--using Gravity’s proprietary diversification measurement.IPC, Gravity’s patented measurement of diversification, produces the weighted average of all unique correlations in a portfolio and provides a measurement of diversification specifically tuned to systematic risk. Gravity calls this advancement in the science of diversification measurement and optimization “True Diversification”.The results of Gravity’s research indicated that every extra percent of IPC was responsible for protecting 98 basis points of capital in a down market. By comparison, similar changes in standard deviation showed a much weaker relationship to returns in both bull and bear markets.“Based on these results, it’s reasonable to infer that the traditional practice of using a Markowitz efficient frontier as a menu of portfolios may be of dubious merit,” says Damschroder. “It’s hard to argue the logic of True Diversification when it protects capital in down markets without sacrificing gains in up markets.”Gravity’s innovative approach to portfolio construction will benefit virtually every sponsor of investment product, including broker/dealers, RIAs, insurance companies, mutual fund companies, hedge funds, pension plans, bank trust groups, 401(k) providers, fund consultants, family offices, foundations, and endowments.
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Posted by Erik Keith on October 15, 2008 at 5:01pm
Obermeyer Asset Management Company (www.obermeyerasset.com) announced today the opening of its new Denver Colorado office at 3200 Cherry Creek South Drive, Suite 480.Located in the heart of the Cherry Creek business district, the office will allow the Aspen-headquartered discretionary asset management firm to expand its presence in the Colorado market. Obermeyer manages the wealth of affluent individuals, families, foundations and corporations by developing investment portfolios tailored to their individual circumstances.Company president Wally Obermeyer, recently named one of America’s Top 100 independent advisors by Barron's magazine, said the new office demonstrates the firm’s commitment to serving Colorado’s affluent investors. “Over the years, we’ve built a solid reputation around the Roaring Fork Valley for delivering solid investment returns and world class service,” said Obermeyer. “We’re pleased about this office opening and the increased investment opportunities it affords the entire Colorado community.”Obermeyer, who entered the investment business in 1994 with $1 million under management, has grown the firm’s asset base to more than $600 million today. The investment team builds and manages a diverse range of equity, fixed income, and alternative investment strategies for about 250 families and their associations.“As our reputation grows, so does the need to serve the investment community here in the Metro Area and around the state,” said Lonny Kandel, Denver Region Vice President and Director of the Cherry Creek office. “Obermeyer has a tremendous wealth management legacy, and I’m very pleased to build on that legacy in Denver.”
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