Committed to Active Asset Management
Our investment philosophy builds on the latest scientific observations and assumptions stipulated by the Adaptive Markets Hypothesis (AMH) introduced by M.I.T. professor Andrew Lo in 2005.
The Adaptive Markets Hypothesis (AMH) builds upon the Efficient Market Hypothesis (EMH) and integrates observations and findings made by scientific research in behavioral and evolutionary finance, psychology, as well as the latest results from cognitive neuro-sciences.
Humans act mostly rational, but react emotional to changes in their environment and they adapt to survive. This is the reason, prices can move differently and movements can go on longer than rationally expected, creating structural breaks and behavioral biases that influence markets. As a result, returns cannot be reliably forecasted, volatilities and correlations are unstable and risk premiums dynamic; realities the Modern Portfolio Theory (MPT) does not consider and cannot explain.
With regard to the effectiveness and efficiency of quantitative, model-based investing, we strictly follow and apply the logic of the Fundamental Law of Active Management (Grinold/Kahn), i.e. maximizing and stabilizing a strategy´s information coefficient and applying it with high frequency (breadth), to maximize excess return (Alpha).
We believe that combining the insights given by the AMH with the logic of the Fundamental Law of Active Management will achieve superior results for our investors and justify our highly active, scientific and quantitative investment management approach as we eliminate emotional and behavioral biases from our own decision making processes.
The Essence of our Proprietary Adaptive Asset Allocation® (AAA) Approach
We believe Modern Portfolio Theory (MPT) is not wrong, it is mainly incomplete. Based on its development history, it has been designed with a limited – rational – conception of the human being, its behavior and decision making processes. Humans are not purely rational beings, they are rather emotional, which strongly influences their decision making. This presents a challenge to traditional – MPT based – finance theory and is a true paradigm shift.
The new world order in investing is a dynamic one. Markets and participants are driven by evolutionary forces such as competition, mutation, reproduction and natural selection. As a result markets are dynamic and context dependent. Convergence to an equilibrium is neither guaranteed nor predictable, behavioral biases abound.
This presents fertile ground for active and especially quantitative asset managers – SAR has developed its own proprietary Adaptive Asset Allocation® (AAA) approach and is intensively working this ground to achieve the best results for its investors.
Contact us to learn more on how we see the world of investing!
®Adaptive Asset Allocation is a registered trademark, licensed to SAR AG