Disruptive Investing

Figure 1 (click to enlarge) Now, we have defined mutual funds as digital assets that can be distributed thru a virtual network, from source where the value is created and managed, to the retail investors where payment of fees is made (plus information about self is granted) in exchange for that created / perceived value, via the wholesalers, distributors, financial advisors and institutional investing networks. But not all is simple, mutual fund managers must navigate a stormy sea of: • Redemptions (clients departing) • Performance (NAV decreasing, Cap gains & Dividends decreasing) • Risk (volatility increasing) • Asset Allocation (what’s the right mix?) • Modeling (efficient frontier “what ifs”) • Competition (perception of better & best) • Disintermediation / Transparency? • Reputation (least worst performing?) • Future? - How will they perform relative to their peers and other assets such as Hedge Funds and ETFs (Exchange Traded Funds)? – Independent scoring of “Diversificat...

We're going to build upon our ideas that the financial industry is a supply chain and information and value flow in both directions, inbound and outbound. See our Mutual Fund Industry Supply Chain Model post. The greatest point of value creation is at the portfolio construction stage (creating and maintaining that list). Preservation of that value (capital) must be supported across the supply chain. Propagation of that value can be diluted when repackaging occurs, that is, when mutual fund wholesalers and distributors (middle men) and financial advisors create bundles of mutual funds with other assets that change the expected returns, diversification, volatility and relative performance, while also adding on expenses and fees, directly charged against the capital. Pervasive technology, proven processes, and experienced people, at all stages assures value, preservation and risk control, or at least, it should. Because of time periods and variability, regeneration (maintenance) must...

More Alpha please! Less Beta too ... and a side of asset allocation. Diversification weighted asset allocation works well with a pre-filter on selection of asset candidates (perhaps based on money manager experience and talent) and then applying true diversification measurement and analysis to determine the optimal blend of those assets that promise the highest returns while simultaneously reducing portfolio risk. (See What is Risk ?) Let's say we can nearly eliminate systematic risk by using the nine-box style-based diversification (ie. capitalization vs. aggressiveness), while going with geo-politial differentiation and asset class selections (bonds, precious metals, stocks, etc.). Great! Now how do we nearly eliminate intra-style-based risk? Using true quantitative diversification weighted asset allocation. In other words, build a portfolio based on the intra-portfolio correlations (IPC) of the assets. We've found that most portfolios have IPC in the range of 25-35%. True Di...

Making money today is not easy, and managing money successfully is even harder. With the global financial and economic crisis in full swing chief investment officers of mutal fund families, mutual fund managers, and their analysts must navigate an incredibly stormy sea. It is global and it is pervasive and is affecting every asset class. New regulations, reporting requirements, ethics, moral hazard and other non-core activities weigh on the ultimate time and focus available for optimizing mutual fund portfolios. Everyone is concerned with risk, volatility, diversification and the performance of their money relative to other potential investment choices. Mutual fund managers must retain existing clients, attract new clients, and avoid the "run-on" issues of mass redemptions that severely cripple the NAV of their fund(s). How to rebalance? What equities to buy? Which ones to sell? When? Which add to returns while also reducing risk? These questions and other problems can be ame...

EARN MORE! RISK LESS! Diversification weighting, is a product of diversification optimization (of a portfolio). Allocation weights can be determined by the extent to which an asset adds uniqueness to a portfolio. Some studies show that using diversification weighting, rather than risk-based weighting, or capitalization weighting, could improve relative performance while decreasing portfolio volatility.

Harry Markowitz is the 1990 Nobel Laureat in Economics & creator of the 1950's era portfolio theory on the Efficient Frontier. Harry invented modern portfolio theory. In these uncertain of economic and financial times, you must use every possible advantage to saving your 401K, IRA, Mutual Funds and Investment portfolios. We believe a combination of Efficient Frontier and diversification analysis, coupled with risk mitigation strategies and an eye on the psychology of the market and economic conditions, can lead to improved investment performance.

Welcome to Mutal Fund Optimizer! We've created this informative blog to help improve investment intelligence and management of money, to help you better design portfolios to reduce risk, increase overall diversification, improve returns and save time and money. Check back often for news, tips and success stories. Thank you! From your Mutual Fund Optimizer team!