Investment ProcessModern Portfolio Theory, developed by Harry Markowitz during the 1950’s, was the first quantitative approach to asset allocation. Since then, the advancements in technology, mathematical algorithms, and experience have led to today’s most advanced portfolio optimization methodology, EVT (Extreme Value Theory). When frequent extreme events keep being described in news reports as “once-in-a-thousand-years”, or “once-in-ten-thousand-years,” common statistical methods and a common understanding of markets seem to be lacking. EVT not only accepts that extreme events occur; EVT allows their frequency and severity to be modeled and their risk to be managed. Fundamentally, traditional models assume that markets are static; EVT begins with the assumption that markets change and that today’s market information is more valuable than long-term average data.
Smart Portfolios’ state-of-the art optimization solution using EVT is called Dynamic Portfolio Optimization. DPO replaces traditional asset allocation models with advanced analytics resulting in superior performance and risk management. The complete Smart investment process includes: