Suppose you have the tools to compute the mean-return efficient frontier to arbitrary (and sufficient) precision — given a set of total-return time-series data of asset/securities. What would you do with such potential?
I propose that the optimal solution is to “breach the frontier.” Current portfolios provide a historic reference. Provided reference/starting point portfolios have all (so far) provided sufficient room for meaningful and sufficient further optimization, as gauged by, say, improved Sortino ratios.
Often, when the client proposes portfolio additions, some of these additions allow the optimizer to push beyond the original efficient frontier (EF), and provide improved Sortino ratios. Successful companies contact ∑1 in order to see how each of their portfolios:
1) Land on a risk-versus-reward (expected-return) plot
2) Compare to one or more benchmarks, e.g. the S&P500 over the same time period
3) Compare to an EF comprised of assets in the baseline portfolio
Our company is not satisfied to provide marginal or incremental improvement. Our current goal is provide our client with more resilient portfolio solutions. Clients provide the raw materials: a list of vetted assets and expected returns. ∑1 software then provides near-optimal mix of asset allocations that serve a variety of goals:
1) Improved projected risk-adjusted returns (based on semi-variance optimization)
2) Identification of under-performing assets (in the context of the “optimal” portfolio)
3) Identification of potential portfolio-enhancing assets and their asset weightings
We are obsessed with meaningful optimization. We wish to find the semi-variance (semi-deviation) efficient frontier and then breach it by including client-selected auxiliary assets. Our “mission” is as simple as that — Better, more resilient portfolios
Balhiser Financial 