The central thesis to our investment process is that certain key factors associated with individual stocks dictate their long-term returns. Or to put it another way, stocks that possess certain key factors that historically have been associated with superior returns have a strong likelihood of future outperformance. Accordingly, we use this framework to craft stock investment strategies that have a high likelihood of outperforming the market due to their significant factor advantages.
To reduce overall portfolio risk, many of our strategies combine our factor models with a proprietary market-timing hedge as a portfolio overlay. By operation, these tactical hedges seek to reduce portfolio risk by limiting stock market exposure when the current market environment suggests that the risk of owning stocks is high, while keeping the portfolio fully invested in stocks when the market environment suggests that the risk of owning stocks is moderate to low.