Smart PortfoliosTM began as a builder and manager of custom trading algorithms for hedge fund, mutual fund and registered investment advisory firms.
In 2004, the company learned of an exciting new theoretical framework for understanding markets, called Extreme Value Theory, which offered new mathematical algorithms applicable to asset allocation.
Smart PortfoliosTM seized on this opportunity and pioneered the application of Extreme Value Theory (EVT) by developing its Dynamic Portfolio OptimizationTM asset allocation system. We feel the improvements to our asset allocation methodology gives Smart’s financial engineers a better understanding of risk and diversification while providing a superior tool for forecasting returns.
We believe the mathematical algorithms taken from Extreme Value Theory represent a significant upgrade to the math used in traditional asset allocation models and allow a more accurate assessment and projection of risk-adjusted returns.
We Are Unique
Smart PortfoliosTM seeks to differentiate itself by creating investment models that dynamically optimize portfolios based on current market activity, instead of relying on passive models that follow long-term historical trends.
Common portfolio management models are based on the belief and hope that the long-term historical averages will prevail over time. This simplistic mean-average approach was born in an era when data was hard to come by and harder to process. Academically, this concept makes sense but it ignores the fact that investors have different goals and objectives and that market and economic conditions can change for extended periods of time. Historically, bull markets last an average of 18 years, bear markets 17 years and the financial markets can be entirely different from one year to the next.
Today we have extensive current market information and better tools (computers and algorithms) to process it. We submit that Smart's financial engineers have upgraded asset allocation similar to how weather forecasters have upgraded from the Farmer's Almanac to a Doppler radar system. Smart's investment methodology follows a scientific process which accepts the fact that markets, securities, risk, return and correlation change constantly, as do the objectives and risk profiles of investors.