Our Philosophy

When it comes to managing our clients’ portfolios we have observed:

  • Long term investing should be about meeting clearly defined outcomes and objectives and not about chasing the highest possible returns by trying to exactly time market highs and lows or selecting the managers with the highest backward looking returns.
  • Not realizing the full gain in an up market is, over the long term, more rewarding than fully participating in a bear market.
  • Historical data can be used as a guide, but rearview mirror investing is fundamentally flawed. Likewise, there is no assurance about a portfolio’s outcome, even in cases of brilliant past performance.
  • Market participants are irrational and will continue to overbuy in periods of exuberance and oversell in periods of extreme fear, ultimately exacerbating market volatility.
  • Securities are generally priced efficiently, and individual security selection or market timing adds little value over the long term. However, from time-to-time and within certain market segments, inefficiencies exist, and active managers can exploit the temporary mispricing of securities for above-average returns.
  • Market events are not normally distributed, and therefore, the portfolio should be invested to expect the unexpected

Our Approach

Asset allocation policy is the determinant for over ninety percent of a portfolio’s outcome. This means that making the right decision within an asset class when that asset class is not performing is less meaningful than allocating in the asset class that is outperforming. This is the foundation for Chao & Company’s approach to a “core-satellite” investment approach:

  • Prudent asset allocation using a Core-Satellite investment strategy is the fundamental approach to successful long term portfolio management.
  • The Core portion of a diversified portfolio seeks simple asset class returns (beta) and therefore uses index investing to efficiently gain exposure to those asset classes.
  • The Satellite portion of the portfolio expands the opportunity set, introducing alternative asset classes (such as commodities and real estate) and alternative investment strategies (such as hedge fund-like strategies) to broaden the benefit of asset allocation while attempting to enhance return.
  • Using a combination of strategic and dynamic asset allocation and rebalancing strategies, we actively allocate portfolios in an attempt to meet a client’s return objectives while minimizing volatility.

Asset Allocator

We are portfolio asset allocators.  From an ex pose (backward looking) view, we rely on investment history and statistics to gain a perspective and understanding on what an efficient portfolio would look like.  From an ex ante (forward looking) view, we examine and analyze the current global macro and geopolitical factors to generate our “base case” and our investment conviction about the future.  We develop broad themes for the short and intermediate term that drive our tactical allocation decisions.  Further, we establish our forward looking capital market assumptions to make heuristicbased asset allocation (rather than purely backward looking efficient portfolio) decisions.

We also recognize that selecting passive or active managers to express our portfolio allocation decision is important.  As such, bottom up research and analysis of active or beta expressions is undertaken along with controlling fees and expenses for the portfolio.

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