Preserve, build and compound (PREBCO)
Investment Approach
Objective
Based on our experience, an important feature to promote success on financial markets is to endure. We focus on risk management to prioritize capital preservation, while executing a set of investment strategies that complement each other. These strategies are designed to seize market opportunities, build wealth through investment returns that compounded over a long time period result in wealth growth. Portfolio volatility is in accordance with the portfolio’s goals and market conditions.
Values
Pragmatism & Epistemic Humility
Investing opportunities are infinite, capital is finite. Not every investment decision is profitable, so the cost of negative outcomes should be mitigated. Therefore, a redeeming quality is to have a responsive awareness of the limits of one’s own knowledge and act accordingly. We hold these beliefs as fundamental principles of our general investment philosophy.
Clear purpose and context-driven goals
Every portfolio is designed around a concrete, quantitative, pre-set and periodically reassessed goal in terms of weighing up risks and returns; always aligned to the prevalent market conditions (i.e., risk free rate and inflation). We make the distinction between our portfolio’s objective, as stated above, and our portfolio’s goal, which is a quantitatively stated target of returns.
Capital Preservation
A clear outline for risk management is of utmost importance; attained from worst-case scenarios assessment, a “loss floor”, diversification and complementarity in our strategy’s features.
Integration
Each ”Building Block” and strategy that constitutes our portfolio has distinct features, all integrated into the portfolio in a holistic and balanced manner (quantitalively and qualitatively) to contribute to the achievement of the portfolio´s objective and goal.
Efficient capital allocation
By using manageable levels of leverage in some of the investment strategies within our portfolio, we are able to optimize the use of capital. We allocate the smallest portion of capital on some of the more volatile strategies and leverage it; while most of the capital is allocated in liquid, low volatility and income generating assets. By doing so, we aim to lower the overall portfolio volatility and increase its liquidity.
Opportunities
The portfolio’s returns are procured through a diverse set of strategies, which allow us to take advantage of market opportunities. Permanent openness to new ways of thinking and investment methods, with a solid framework and process, gives the portfolio a high degree of adaptability to market conditions and an opportunistic approach.
The fundamental principles of our general investment philosophy, which are epistemic humility and pragmatism, permeate all of our work. You’ll identify them as the recurring trait, a “leit-motif”, in all of our portfolios. Both principles reflect our conviction that having a responsive awareness of the limits of one’s own knowledge and acting accordingly helps to mitigate the cost of negative outcomes and to adapt to actual circumstances. Such conviction propels us and guides us to achieve our goals responsibly.
Building blocks
The fundamental principles of our general investment philosophy, which are epistemic humility and pragmatism, permeate all of our work. You’ll identify them as the recurring trait, a “leit-motif”, in all of our portfolios. Both principles reflect our conviction that having a responsive awareness of the limits of one’s own knowledge and acting accordingly helps to mitigate the cost of negative outcomes and to adapt to actual circumstances. Such conviction propels us and guides us to achieve our goals responsibly.
Block 1 - LIquidity, income & directional positioning (LID)
(Mayor asset allocation)
Objective: Generate, as far as possible, a stable income with a high degree of confidence and liquid assets.
Directional possitioning in mid-term and long-term opportunities, prioritazing the main objective of the LID block (liquid, income generation assets ).
The rate of expected return for this bulding block will be in acordance and in some way linked to the risk free rate, due to its nature of being primarly an income, low volatility block.
Block 2 - Multi-asset, Actively managed, Volatile Strategies (MAVS)
(Long/short strategies with a wide range of timeframes, asset classes, volatilities and leverage)
Objective: Generate prime returns for the portfolio with a lower allocation relative to the LID building block.
Our ¨Big offense¨ block; the portfolio’s salient returns are generated from the cluster of strategies within this building block. All strategies are assessed by their performance and an analysis of their core features.
Low correlation with market benchmark returns, due to the diverse features of the strategies that constitute this building block.
All the cash left after covering margins needed for each strategy on the MAVS remains in cash and/or is invested in short term bonds until maturity.
