It is our belief that in the digital age individual personalization is going to be a key weapon in the battle against irrelevance and disintermediation for financial advisors.
We provide, for the first time ever, a way to utilize disruptive technology driven personalization and mass-customization. Our proprietary Strategic Asset Allocation framework and technologies allow one to aggregate held away assets and diagnose existing portfolio holding. It maps fund products and securities to precise granular asset sub-classes, offers consensus capital market assumptions as a useful starting point, personalizes investor preferences, demonstrates inefficiency in portfolios, optimizes and allows for multi broker securities execution.
All in under 10 minutes and within 10 mouse clicks!
Consolidation and Aggregation
Our first step is to arrive at a complete picture of securities, fund holdings and other finances held in a client portfolio. With permission, we securely retrieve such data from thousands of financial institutions and brokerages on behalf of clients and their financial advisors. We reduce repetitive data collection and data entry and provide our clients with a simple, interactive data-capturing experience.
Mapping Financial Products to Asset Sub-classes
We, in seconds, analyze the forward-looking statistical properties and expected behavior of a client’s existing portfolio. This done, we recommend the best combination of asset subtypes that improves it on a variety of chosen metrics. Our, to be patented, proprietary methodology and scalable technology searches, recognizes, classifies and instantly maps more than four million traded financial instruments to over fifty asset sub-classes to improve strategic asset allocation and portfolio construction. Within equities ActiveAllocator scrutinizes and maps nearly all global stocks, depositary receipts, certificates, ETFs, mutual funds, investment trusts, preference shares, rights, royalty trusts and other equity-linked products. This universe is comprised of more than two million equity securities including, 665,000 stocks, 163,000 exchange traded products, 51,000 closed end funds, 31,000 fund of funds, 18,000 ADRs, 7,600 Unit Investment Trusts, 6,500 preferred stocks, as well as 1,600 private equity and 10,000 hedge funds. Within fixed income, ActiveAllocator’s technology encompasses over one million U.S. government and agency bonds, collateralized loan obligations, collateralized mortgage obligations and other types of commercial mortgage backed securities and structured products. Within money market instruments, our system recognizes more than 42,000 instruments across fifty categories of bankers’ acceptance, bills of exchange, call loans, certificates of deposit, commercial paper, time deposits, discount notes and monetary bills. Within municipal securities, we distinguish between 1.1 million instruments across original issue discount munis, fixed, adjustable, tax credit, floating, zero coupon, intermediate appreciation and consumer price index linked products, amongst others.
Capital Markets Assumptions
Each wealth management firm, each wire house, often each broker-dealer periodically arrives at their own future view of asset class expected risk and return. Sometimes clients too have strong viewpoints that they may want to discuss. Yet financial advisors have no easy way to test such comparative views within the specific context of their particular client’s portfolio. We allow advisors to do this this in minutes; our portal helps advisors quickly simulate such scenarios and allow them to quantify revision in views, triggering valuable dialog. We constantly monitor research from wirehouses, investment banks, consulting firms to arrive at consensus long term capital market assumptions such as expected risk, return and correlation within asset classes. This becomes a useful starting point for an asset allocator or an investment committee to accept or over ride generally accepted market views. In addition to traditional liquid assets we also generate such assumptions for illiquid assets such as private equity, real estate and hedge funds. These serve as inputs into allocation optimization.
We go far beyond conventional risk and return tradeoffs, whilst personalizing for unique investor preferences including allowing for or aversion to alternatives or illiquidity, accommodating different investing horizons, time varying risk preferences as well imposing constraints on specific asset type exposure. We integrate passive and active, liquid & illiquid, traditional and alternative investments analysis personalized to particular investor preferences, constraints and situations. For example, each investor can override consensus expected future risks and returns in any asset class and generate personalized, forward looking portfolios.
Our new approach is ahead of that built around Modern Portfolio Theory. We allocate simultaneously across multidimensional return sources including alpha (skills), beta (marketexposure accessible inexpensively), downside risk (extreme but rare market movements) and illiquidity (whose time premiums can be purposively unlocked). We analyze the statistical properties of existing portfolios and improve strategic asset allocation by finding the best combinations of liquid and illiquid asset classes to improve existing portfolios. We enable strategic asset allocation across over 50 asset subclasses. We integrate passive and active, liquid & illiquid, traditional and alternative investments analysis personalized to particular investor preferences, constraints and situations. We allocate to non-traded assets. We account for non-tradability, illiquidity premium as well as marked to market risk. We also allocate to actively managed structures while a) appropriately calibrating returns; b) accounting for factor exposures and their implications for returns in the future; c) removing survivorship and selection bias in historical returns; d) appropriately estimating risk including skewness, kurtosis gleaned from historic returns; e) incorporating pricing distortions, serial correlation and the impact on risk; f) managing strategy drift and unstable histories; and g) optimizing downside risk.
To implement the recommended portfolio and associated changes in security holdings we utilize a proprietary order management system which securely routes trade orders to brokers. This enables investors to optimize their existing portfolios on ActiveAllocator by linking their brokerage account and sending order messages to their broker directly from ActiveAllocator’s platform. We further provide real-time portfolio data from the user’s brokerage firm, which is imported into ActiveAllocator to provide the most current picture of their portfolio’s forward facing characteristics.