phaseinvest

Risk is the price we pay for return, which means that we should only take investment risks that can potentially deliver commensurate returns. Index investing, largely dominated by cap-weighted benchmarks, creates the illusion of diversification while concealing significant concentration risk. However, this risk does not always yield proportional returns. For example, the S&P 500, driven by 10 stocks primarily from the same sector, holds an additional 490 securities, making it inefficient both operationally and in terms of risk. The S&P 500 essentially resembles a 10-stock portfolio weighed down by 490 redundant stocks. Creating a genuine 10-stock portfolio where concentration risk is a deliberate strategy, rather than a mere size-driven exposure bet, would be more effective. A well-executed portfolio management process can deliver commensurate returns and offer a realistic opportunity to outperform, as is demonstrated by the two 10-stock portfolios presented in this post. US-PI-DY10 (https://lnkd.in/eBSp728E) seeks to extract concentrated dividend yield premiums from US large-cap stocks that have consistently increased their dividends over the long term. This is a special universe because growing dividends consistently over decades requires a bulletproof business model that stands the test of time. US-PI-DY10 outperforms comparative US Large Cap and SMID Dividend Yield Aristocrat ETFs in terms of risk-adjusted returns. US-PI-MOM10 (https://lnkd.in/e4xqtFdV), the second index, aims to capture concentrated US Large Cap Growth exposure through a momentum focus. It delivers improved returns relative to risk exposure in comparison to MTUM, a US Large Cap Growth ETF. Concentration risk can be a tool for extracting superior risk-adjusted returns, but only if false diversification is avoided. Combining concentration risk with false diversification can negatively impact returns. #concentratedportfolio #alternativeinvestments #factorinvesting #directindexing #portfoliooptimisation #phaseinvest

The general notion is that allocation to non-US equities would have generated gross underperformance over the last 8-10 years, but we beg to differ. While broad-based international equity ETFs, often holding over 1000 securities, have grossly underperformed US equities in recent years, we offer a compelling alternative. Our proprietary Phase Detection Engine (PDE) (https://lnkd.in/eWGjR6rg) enables us to construct international indexes with fewer holdings, providing diversification without compromising returns - all using US-traded listings of non-US firms. We've developed two international indexes, ACWxUS-PI-MOM25 with 25 stocks (https://lnkd.in/ejVsnQx7) and ACWxUS-PI-MOM10 with 10 stocks (https://lnkd.in/e-_8XkET), that offer RIA firms operational ease in allocating international exposure to client portfolios. These indexes demonstrate: 1.) Efficient international diversification 2.) Competitive returns 3.) Simplified portfolio management Discover how our innovative approach can help you include allocation to international equities, adding risk diversification without compromising returns. For seamless access to our strategies, indexes, and models, including direct indexing with tax-loss harvesting, connect with our US partner - BX Partners. #globalequity #momentuminvesting #proptech #financialadvisor #RIA #phaseinvest

In this post, we present key attributes of our two US Momentum indexes that seek to capture momentum exposure in portfolios of 50 stocks within their respective Size segments; the US Large Cap Momentum (US-PI-MOM50) and the US SMID Momentum (US-PI-SMID-MOM50) index. Both indexes, independently calculated by Index One, capture Momentum exposure via the phaseinvest proprietary Phase Detection Engine (PDE) (https://lnkd.in/eQ9_mwDG) we introduced in a LinkedIn post a few weeks ago. PDE, phaseinvest's proprietary regime identification framework, represents a significant advancement in stock price analysis innovation. It offers a robust model for efficiently capturing a security's price momentum and volatility. The framework is grounded in the concept that a stock's price progresses through distinct phases or regimes. From this perspective, each phase signifies a unique period in a stock's price series, necessitating a separate analysis of price-based analytics for each phase. Consequently, at any given moment, the momentum and volatility of each stock should be assessed over its specific time window, rather than using the same predefined window for all stocks. US-PI-MOM50 is comparable to the MTUM ETF that delivers US Large Cap Momentum exposure whilst we compare US-PI-SMID-MOM50 to IWM that captures US SMID exposure. US-PI-MOM50 consistently outperforms MTUM whilst US-PI-SMID-MOM50 consistently outperforms IWM. #equityriskpremia #USlargecap #phaseinvest #momentumindexes #riskadjustedreturn 

In this post, we present key attributes of our US Large Cap Size (US-PI-SZ50) and US SMID Size (US-PI-SMID-SZ50) indexes. Both indexes, independently calculated by Index One, capture Size exposure using market capitalisation as the metric to define size.  These indexes are comparable to their widely used counterparts: S&P 500 for US Large Cap and Russell 2000 for US SMID. For performance comparison, we use SPY as a proxy for S&P 500 and IWM as a proxy for Russell 2000, as both ETFs fully replicate the indexes they track. US-PI-SZ50 consistently outperforms SPY whilst US-PI-SMID-SZ50 consistently outperforms IWM. Both Size indexes move in unison with their comparative benchmarks but at different gradients, that results in incremental outperformance that compounds over time to a significant difference. Bias is the Achilles heel of investment decisions. While systematic investment processes are good at mitigating human bias, they can still be hostage to cognitive-errors induced bias that we can witness in most market capitalisation-based indexes. In an article on the mitigation of cognitive errors and their impact on equity portfolio construction (https://lnkd.in/eiTWJxtP), we showed that cognitive errors are present in the distribution of market capitalizations in the US Large Cap and US SMID universes. These errors negatively impact portfolio construction, and as the article demonstrates, mitigating these errors materially improves portfolio construction efficiency resulting in higher risk-adjusted return. #equityriskpremia #USlargecap #phaseinvest #sizeindexes #riskadjustedreturn

In our inaugural series of articles, which we wrapped up a month ago, we delved into various facets of equity investing that emphasise frameworks to enhance equity portfolio construction. We discussed the importance of mitigating cognitive errors, the benefits of improving the efficiency of factor premia extraction, and the potential of tax-loss harvesting (TLH). We also introduced Direct Indexing (DI) as the next evolution in index investing and our unique approach to amplify its benefits. We believe DI is the next generation of index investing as it democratises personalised investing whilst boosting portfolio return by allowing investors to harvest the tax benefits of direct ownership of stocks. TLH is a powerful tool that allows investors to extract returns from losing positions by strategically realising capital losses to reduce capital gains tax liability, and thereby enhance portfolio returns. We consider TLH as DI's ⚙️"Techo-vation".  💳"Fin-novation" is the second pillar via which our unique DI delivers benefits. Investors can DI a 3rd-party index or one of phaseinvest's proprietary indexes that deliver superior risk-adjusted return for the same exposure compared to widely used indexes. We have wiped the slate clean to develop a portfolio construction framework that is more efficient in capturing targeted factor exposures. Our proprietary Phase Detection Engine (PDE), a price regime identification model, demonstrates a consistently higher accuracy in capturing a security's price momentum and volatility. The use of PDE during security selection and weighting leads to improved investment outcomes. The second aspect of our Fin-novation is risk-management driven security substitution when personalisation preferences require the exclusion of index constituents. We believe, the set of substitutes is dynamic and can vary depending on the index and the security being excluded, to ensure that the personalised index maintains the targeted risk exposure and tracks the underlying index as closely as possible. In the new series of articles that we are commencing with this post, we will take a deeper dive into phaseinvest's indexes. We will explore our unique approach to index construction of triangulating proven quantitative finance concepts, actively mitigating cognitive errors and overlaying PDE. The result is superior risk-adjusted performance compared to traditional indexing strategies. This post serves as the introduction to a new series of articles, where we will take a closer look at each one of phaseinvest's indexes. We invite you to learn more about the intricacies of our innovative indexing methodology and discover how phaseinvest is revolutionising the world of index investing. #phaseinvest #directindexing #personalisedinvesting #finnovation #betterindexes

This framework provides a better way to manage equity portfolios, leading to improved performance. It combines a superior portfolio management framework with the additional return uplift from tax-loss harvesting (TLH) achieved through direct indexing of the index strategy. #investing #equity #portfoliomanagement #factorinvesting #directindexing #phaseinvest

Stock price encapsulates all available information and investor expectations, making it a crucial input to equity portfolio management frameworks. In the dynamic landscape of equity markets, investors constantly seek innovative approaches to harness the power of adaptive price analysis to build superior portfolios. By embracing cutting-edge techniques that accurately identify price regimes, investors can enhance the extraction efficiency of desired risk premia, ultimately leading to better investment outcomes. #equity #investing #FinTech #innovation #beyondthebasics

The >50% market share of #ETFs is proof that investors prefer index investing as their investment framework. Direct Indexing (DI) has emerged as the fastest growing indexation vehicle, and improved indexes offer investors the opportunity to amplify the DI return uplift over traditional indexation vehicles. #passiveinvesting #smartbeta #investing #riskmanagement #phaseinvest

#ETFs are the favoured indexation vehicle but they do not allow personalisation nor can they pass-through tax-losses on individual positions to investors. #directindexing #personalizedinvesting #indexinvesting #fintech