The foundation of our investment process is academic. We lever the existing research on investing and focus on the actual, not the theoretical, strategies that work in capital markets. Conceptually, we believe in the philosophy of investing for the long term by allocating capital across a diversified pool of asset choices. We choose assets that typically show dissimilar performance profiles, or what Modern Portfolio Theory (MPT) defines as correlations less than 1.  While we subscribe to some of the concepts dictated by MPT, we recognize the limitations of taking theory and applying it to real world portfolio management.  Nonetheless, we do construct portfolios to diversify and mitigate risk with an objective to maximize return. We focus on broad market sectors and not individual securities.  We don’t typically “pick” stocks or attempt to “time” the market.  For more insight on why we don’t market-time, visit the article in our Education & Research section

Risk assets are invested in the Atlas Core Satellite strategy employing a core exposure to large capitalization equities with satellite investments in less correlated asset classes such as: currencies, commodities, master limited partnerships and other assets. To help determine a specific asset allocation strategy, we utilize a multi-factor decision framework which employs statistical filtering and a 1) value and 2) momentum biased ranking criteria. This framework enables us to choose investments with higher expected returns than the market.

Domestic Equity Strategy

Core domestic equity portfolios are made up of both Electronic Traded Funds (ETFs) and up to 100 of the largest companies in the S&P 500, chosen to represent index’s sector weightings while achieving factor exposure to value and momentum.  Our process also incorporates a filtering factor for market capitalization (aka – size factor) as we broaden the universe of domestic equities beyond the S&P 500.  The resulting portfolio will emulate index performance with minimal tracking error and, unlike index funds, will provide the opportunity to capture tax losses and significantly enhance after-tax returns.  ETFs are used to gain sector exposures where individual stocks maybe inefficient, such as small cap stocks and preferred shares.

International Equity

International equity allocation begins with an assessment of economic prospects for the major industrialized countries and their currencies. For selected countries, individual equity portfolios are structured much like their U.S. counterparts to emulate major market indices, but with enhanced tax efficiency. In some circumstances, ETFs or futures may provide more attractive vehicles for participation in these markets, and currency transactions may be used to hedge or enhance international equity exposure.

Alternative Low Correlation Strategies include:

Merger Arbitrage

Companies involved in merger situations often present a high risk adjusted return when trading at levels below take over price. Atlas regularly tracks these opportunities and invests capital where appropriate.

Volatility Arbitrage

The S&P 500 volatility index persistently trades above levels realized in actual volatility. By using either futures contracts or swaps, Atlas gains access to this exposure on behalf of its clients for diversification purposes.

Active Equity

After significant research, Atlas may choose to invest in companies with low valuations (undervalued), unrecognized franchise value, recurring revenue business models, and those involved in bankruptcy proceedings and shareholder activism. In addition, Atlas will accommodate positions that are driven by client choice or by circumstances beyond that which systematic models can capture.

Currencies and Commodities

For some accounts, we may include modest exposures to currencies and/or commodities.   We may choose to exploit a valuation inefficiency between 2 different assets or within the futures time series of a particular asset.

 

The video has some components that were timely at the time of production but may not be so today. Nonetheless, it does offer insights into Atlas Capital Advisors’ process regarding equity securities.