The dynamic asset level investing process A disciplined course for strategy creation
In making tactical portfolio decisions, our team utilizes the point-and-figure research and evaluation techniques of Dorsey, Wright & Associates — an institutional research firm with extensive expertise in point-and-figure charting. This type of analysis attempts to evaluate the supply and demand forces of particular asset classes, then ranks them from strongest to weakest based on relative strength. In the financial markets, asset class performance is compared daily to determine which are the strongest or weakest. This ranking process — dynamic asset level investing — comprises four steps.
Asset classes can be ranked similarly to sports teams. When assessing a team on how well it performs against the competition, the more games, matches or races won, the higher the ranking.
STEP ONE: Establish a roster for each asset class.
We first create a list of members for each segment within the asset classes selected to include in our strategies. For example, in the international equity space, all areas of the world are represented, from Europe and Latin America to Australia and Asia, to help ensure that no one segment within an asset class has too great an influence.
STEP Two: Calculate selected asset class members' relative strength.
Each member on the list has a score, which is compared against all other members being evaluated. In essence, a competition is held to see which is the strongest. After all individual calculations are computed and charted on a point-and-figure basis; each member now has its number of relative strength wins.
STEP THREE: Score the asset class as a whole.
The total number of wins for each individual member of the asset class is added together to calculate a composite score for the entire asset class. The asset classes are then ranked from one to five, and include domestic equities, international equities, commodities, currencies and fixed income.
STEP FOUR: Determine asset classes to be emphasized.
The top two ranked asset classes are eligible to be emphasized in dynamic asset-level investing, but they must pass one last hurdle. These asset classes are each compared to cash on a point-and-figure relative strength basis. If cash is stronger, it will be emphasized in the portfolio and is the only asset class that can occupy both of the top spots.