Riverside Analytics Inc
Quantitative Investment Solutions

Strategies

STRATEGY OVERVIEW

As self directed investors we need to consider the following as a part of our Investment Plans;

  • Investment Goals;
  • Investor Age;
  • Investor Risk Tolerance (Conservative, Moderate, Aggressive);
  • Comfort level in managing your own investments;
  • How much time do you have to manage your investments?;
  • How much time do you want to be spending managing your investments?;
  • Do you have to be invested in the markets at all times?
  • Would a single asset allocation strategy suit your needs?
  • Would a blend of two or all three strategies suit your needs?

THE ASSET ALLOCATION STRATEGY FOR YOUR PORTFOLIO, NEEDS TO BE DEVELOPED FOR YOU AND YOU ALONE.

At Riverside we currently track and monitor a total of 18 longer term investment strategies. These strategies produce their signals on a weekly or monthly basis depending on the strategy. These strategies have been hand selected for their use of their growth/risk management characteristics. These strategies fall under the following asset allocation models; Strategic Asset Allocation (SAA), Tactical Asset Allocation (TAA), Dynamic Asset Allocation (TAA) and Rotational.  These asset allocation models can be used in isolation or in combination with one another. Below is an overview and brief overview of the asset allocation model types.

STRATEGIC ASSET ALLOCATION (SAA)

  • Strategic asset allocation starts with a target asset mix based on an investor’s expected rate of return and risk tolerance, and the long-term performance of different asset classes;
  • SAA makes no attempt to predict the direction or magnitude of short-term market volatility;
  • Investment portfolios are periodically re-balanced to restore the target asset mix;
  • We will discuss re-balancing in more detail later on during the class;
  • SAA promotes selling high and buying low;

TACTICAL ASSET ALLOCATION (TAA)

  • Tactical asset allocation (TAA) is a dynamic investment strategy that actively adjusts a portfolio’s asset allocation. The goal of a TAA strategy is to improve the risk-adjusted returns of passive management investing;
  • TAA strategies can be either discretionary or systematic;
  • TAA involves actively looking for short- and intermediate-term undervalued and overvalued assets, and moving between asset classes to take advantage of these market inefficiencies;
  • TAA strives to use market timing to achieve stock like returns with bond like volatility;

DYNAMIC ASSET ALLOCATION (DAA)

  • Dynamic asset allocation may involve several portfolio adjustments over the short term to respond to market conditions;
  • THERE IS NO TARGET ASSET MIX because portfolio managers can change allocations based on their assessments of current and future market trends;
  • Dynamic Asset Allocation uses market timing and relative strength for allocation purposes;
  • Dynamic Asset Allocation (DAA) is distinctly different than both Strategic and Tactical Asset Allocation;

ADAPTIVE ASSET ALLOCATION (AAA)

  • The “New” Form of Asset Allocation;
  • The version of asset allocation uses the methodology of Dynamic Asset Allocation but…
  • The weighting of each asset in the portfolio is determined through returns and minimum variance optimization;
  • A minimum variance optimization uses a “weighted” covariance matrix calculated based correlations and volatility;
  • In short……..AAA determines the overall risk of each asset in portfolio relative to each asset in the portfolio and uses this information with price momentum to determine the applicable weight of the asset in the portfolio;

ROTATIONAL STRATEGIES

  • Rotational Strategies involve a relationship(s) between Offensive and Defensive Assets;
  • Rotational strategies employ a mechanism to quantity the strength of both Offensive and Defensive Assets;
  • After the strength of both assets have been determined the strategy selects the stronger asset and holds this asset for a pre-determined period of time (i.e One Week, One Month, etc);
  • After the holding period has expired, the strength of both Offensive and Defensive Assets is re-determined the strategy either holds the current asset or replaces the weaker asset with a stronger asset;