Investment Philosophy
Corazon Capital mandate is first to preserve clients wealth and then to make positive returns on their portfolios in all market conditions.
To accomplish this, we create and monitor portfolios which combine our proven expertise in fund manager selection and asset allocation. Also, we recognise the efficiency gains for a portfolio in combining alternative investments with traditional assets. Hedge funds, when added to a traditional portfolio of stocks and bonds, can improve returns and reduce risk.
The chart below shows the effect of adding 10% increments of hedge funds (as measured by the CSFB Tremont Hedge Fund Index) to a traditional portfolio composed of 60% equities (S&P 500) and 40% bonds (Lehman Brothers Aggregate Bond Index).
Effect of Adding Hedge Funds to a Traditional Portfolio
Based on January 1994 to December 2006 data. Hedge fund performance modelled using CSFB-Tremont Hedge Fund Index. Traditional portfolio modelled using 60% S&P 500 Index and 40% Lehman Brothers Aggregate Index
As hedge fund content increases, returns improve and risk decreases. Having identified a client’s objectives, our investment process enables us to design the optimal portfolio structure with which to achieve them.
Selected portfolio asset allocations are shown in the table below.
What are the key elements of this philosophy?
Alpha generation. Our success is measured by our skill in selecting investments which will perform independently of movements in the market. We therefore utilise a variety of strategies to maximise alpha in portfolios. Alpha is the difference between a portfolio’s return and that from a specified market benchmark.
Volatility reduction. Central to our approach is the generation of returns that have both low volatility and low correlation with traditional market benchmarks. Volatility is the degree of uncertainty of returns from an investment. Minimising this, in conjunction with selecting investments that are uncorrelated with other asset classes enables us to generate a positive absolute return.
A proven methodology. Our methodology combines quantitative / performance analysis, strategy / risk analysis and operational / process analysis to select the best investments for inclusion in portfolios. Alternative investments are complex and require a rigorous approach to their selection. The firm’s principals have developed and refined this methodology over the last 20 years.
A dynamic investment process. We tactically allocate among a range of complementary investment strategies and styles to exploit opportunities in the market. Selected managers are under continual review and subject to buy and sell disciplines to reflect this proactive approach.