Asset Allocation Modeling

Asset allocation is among the most important decisions that investors make. Asset allocation has an important role in a portfolio’s long-term return. We believe that modeling the asset mix is one important tool in determining an investor’s long-term strategic asset allocation. Long Street's approach to helping clients make asset allocation decisions is highly customized, and our proprietary Machine Intelligence software is a reflection of that. Long Street's internally developed systems are purposefully designed such that we don't rely on a single model or set of assumptions. 

 

Economic Landscape Optimization

Long Street utilizes a proprietary economic modeling software powered by machine data intelligence to thoroughly analyze the current economic environment for the global economy, regions, asset classes and industries. With this analysis complete, we then forecast returns and weight portfolios according to the highest reward to risk outlook incorporating the optimal investments for each asset class for each geographic region.

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Efficient Frontier Optimization

Using historical risk premia of various asset classes, Long Street develops initial estimates of future return, risk, and correlation. In our experience, Efficient Frontier models can be helpful in determining the optimal risk/ return trade-offs associated with different portfolios.

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Historic “Stress Test” Model

Using factual, historic data to understand how different portfolios have behaved in past market environments can be a very useful exercise. We have found Stress Test modeling to be particularly informative when evaluating a portfolio’s risk during adverse market conditions (e.g., the 1987 Stock Market Crash, the 1990’s Tech Bubble and the 2008 Global Financial Crisis).

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Monte Carlo Model

Long Street's Monte Carlo model allows our clients to use forward-looking asset class risk and return forecasts as part of the asset allocation decision making process. This model uses probabilistic simulations in order to provide an estimated range of future outcomes based on a portfolio’s future estimates of risk and return. In Long Street's experience, such modeling is most useful when evaluating best, worst and base case future returns and/or ending market values for a given portfolio.

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At Long Street, we recognize the limitations of asset allocation models and place an emphasis on understanding a client’s practical considerations when providing asset allocation advice.