A Risk Management Approach to Portfolio Construction
At Cape Ann Capital, portfolio construction begins by determining a client’s individual risk profile. Through our hands-on approach, we work with clients to help them customize a risk profile that is designed to meet their needs and objectives.
In keeping with our approach to investing, our risk profile exercise combines individual emotion and intellect, as well as statistical analyses. We have studied the relationship between return and risk from 1970 through current times and by walking clients through this research, we’re able to help determine their individual risk profile. The research covers both bull and bear markets, six recessions, and dramatic market volatility from Black Monday (1987), the start of two separate wars in the Middle East, the dot-com collapse in 2000, the terrorist attacks on 9/11, the Flash Crash of 2010, and numerous speculative bubbles. We believe that discussing risk in the context of actual events, rather than hypothetical situations, is far more beneficial for clients.
Once a risk profile is agreed upon, Cape Ann Capital constructs each client portfolio to match their individual needs and long-term asset goals. All client portfolios are built from our final basket of funds that meets our requirements of long-term success and consistent skill. We then calculate the allocations of mutual funds to align the portfolio with the risk profile defined by each client. As markets shift, Cape Ann Capital proactively rebalances allocations in line with targeted goals.
We actively monitor each portfolio’s risk relative to its benchmark. In the rare occasion that the optimal portfolio is not within its benchmark tolerance, Cape Ann Capital will add exchange-traded index funds to bring the portfolio in line.
To learn more about our personalized portfolio construction process, please contact us directly.