Enhanced Dynamic
Enhanced Dynamic® is a prudent, institutionally-oriented, fiduciarily sound, award-winning, quantitative equity allocation and investment methodology that was developed to produce higher domestic equity portfolio returns while reducing portfolio volatility (higher risk-adjusted returns over a full market cycle).
The Enhanced Dynamic® methodology is founded on the culmination of decades of investment management consulting experience in the direction of portfolio assets for individuals, HNW families, retirement plans, and institutions. Enhanced Dynamic® stands on current and proven best practices within the financial services and investment consulting industries.
Objectives
The main objective of the Enhanced Dynamic® investment methodology is to prudently allocate more domestic equity assets to the outperforming domestic equity styles (growth and value) and capitalization sizes (small, mid, and large), while reducing investment assets to the under-performing and out-of-favor domestic equity styles and cap sizes.
The Enhanced Dynamic methodology also prevents the common problem of hiring and overweighting last year’s top performing investment strategies, only to have them underperform the market averages over the next three to five years.
The original conceptual foundation of Enhanced Dynamic® was to win simply by not losing as much or as often in down markets as the equity markets. What we found however was, not only does an Enhanced Dynamic® portfolio avoid participating in the full market downturns, but it also captures more of the market upturns.
Investment Process
The expectation of achieving much higher and sustainable risk-adjusted returns is accomplished by strategically over-weighting the in-favor style adherent actively managed U.S. equity managers and or index vehicles, while under-weighting the opposing out-of-favor and under-performing active managers or indices, according to the Enhanced Dynamic® methodology.
The Enhanced Dynamic® methodology is not a tactical asset allocation or market timing strategy. Equity portfolios utilizing Enhanced Dynamic® are to remain fully invested at all times. Enhanced Dynamic® is considered to be prudent and fiduciarily sound for institutional retirement plans, investment portfolios, UHNW family offices, and individual investors.
Enhanced Dynamic® is employed within two proprietary strategies that add significant benefit to domestic equity portfolios:
- Applied in a top-down manner to strategically establish over- and under-weightings of domestic, style, and cap size adherent equity managers and investment vehicles
- Applied as a bottom-up manager screening and selection process used to evaluate and select proven, style adherent, active equity managers
Observations
In the domestic equity market, a growth or value equity investment style has been favored during certain periods of a market cycle versus the opposing equity style which has lasted for extended periods. The same statement holds true where a large cap or small cap equity investment style has been favored during certain periods of a market cycle versus the opposing equity capitalization size, which also has lasted for extended periods.
Investment style dominance has typically prevailed across all capitalization sizes, with the same holding true for investment capitalization dominance.
- Since 1978 versus the S&P 500, the Enhanced Dynamic® domestic equity investment methodology has achieved statistically significant annualized excess returns, adjusted for volatility, in back-tested and academic studies using the Wilshire large and small cap indexes.
- Since 1978 versus the S&P 500, Enhanced Dynamic® has also demonstrated statistically significant annualized excess returns, adjusted for volatility, in back-tested, academic and industry studies using the Wilshire growth and value indexes.
- In fact, since 1978, as shown through every empirical academic study and our internal back-tests, the Enhanced Dynamic® methodology has consistently delivered higher risk-adjusted results through all investment cycles with indexes, and these results increased considerably when utilizing independent, active, style adherent, domestic equity managers.
We expect to increase a portfolio’s overall domestic equity returns, with equal or lower volatility than the market, by combining the results of thoroughly screened and vetted active equity style and cap size management, applied strategically (not tactically) over a full market cycle.
The Enhanced Dynamic® investment methodology may be incorporated within existing domestic equity portfolios with minimal dislocation of current style adherent portfolio managers and investment structures, and without significant additional expenses.
The depth or degree of style and cap size adherence of the investment management vehicles will be an important determinant in the success and benefit of the Enhanced Dynamic® methodology within a client portfolio.
Again, we stress that equity portfolios are expected to remain fully invested at all times and that this is not a tactical market timing strategy.
Fiduciary and Due Diligence Considerations
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