Windham Labs hosts Benjamin Eischen to discuss different types of portfolio simulation and how to apply them to determine the best portfolios for clients.
Best VIP Call Girls Morni Hills Just Click Me 6367492432
ย
Portfolio Simulation to Meet Client Goals
1. 1ยฉ 2016 Windham Capital Management, LLC. All rights reserved.
Confidential. Not for redistribution.
November 2016 1
Portfolio Simulation to Meet
Client Goals
Benjamin Eischen
Windham Capital Management, LLC
Senior Investment Associate
2. 2ยฉ 2016 Windham Capital Management, LLC. All rights reserved.
GOAL OF THIS PRESENTATION
Introduce a rigorous quantitative approach to help managers add value
through portfolio simulation
3. 3ยฉ 2016 Windham Capital Management, LLC. All rights reserved.
AGENDA
๏ง General Purpose
๏ง Target Date Funds
๏ง Types of Simulation
๏ง Capital Market Assumptions
๏ง Example
๏ง Dynamic Strategy Review
๏ง Future considerations
4. 4ยฉ 2016 Windham Capital Management, LLC. All rights reserved.
GENERAL PURPOSE
โข Design a portfolio that has the highest likelihood of achieving the clientโs
targeted goal
โข Paying for college
โข Retirement
โข Gifting
โข Sustained Spending
โข Communicate the investment strategy in a way the client can understand
โข Build confidence and trust
5. 5ยฉ 2016 Windham Capital Management, LLC. All rights reserved.
TARGET DATE FUNDS
โข Do not take into account the complete portfolio
โข Spending and future earnings are disregarded
โข Minimal or no assumptions about initial conditions or risk/return
expectations
6. 6ยฉ 2016 Windham Capital Management, LLC. All rights reserved.
TYPES OF SIMULATION
โข Monte Carlo Simulation
โ Asset class returns are drawn from a normal distribution defined by
their assumed means and covariance matrix.
โ Correlations between asset classes are constant throughout the
simulation.
โข Block Bootstrap Simulation
โ Portfolio risk is best predicted by the empirical underlying data
โ Does not assume portfolio returns come from a normal distribution
โ Blocks of data are chosen to keep in tact any autocorrelation
โ Correlations between asset classes are dynamic and change through
time (at least as much as we have seen through the historical sample)
โ The empirical distribution is rescaled to reflect forecasted returns.
7. 7ยฉ 2016 Windham Capital Management, LLC. All rights reserved.
MONTE CARLO VS. BOOTSTRAP
8. 8ยฉ 2016 Windham Capital Management, LLC. All rights reserved.
CAPITAL MARKET ASSUMPTIONS
Return
- Historical
- CAPM
- Implied
- Blended
- Black-Litterman
- Views
Risk
- Historical
- Exponential
- Conditioned on turbulence
- Filtered
9. 9ยฉ 2016 Windham Capital Management, LLC. All rights reserved.
WHY THE EXPECTED RETURN IS NOT TO BE EXPECTED
If you accept history as a guide to the future, at least to the
extent that history includes within it the potential investment
outcomes of the future, then the following two seemingly
paradoxical statements are true:
โข The expected future wealth of a sequence of
returns drawn randomly from an actual
historical sample is greater than the wealth
actually produced by those historical returns
โข Even if the past truly is representative of the future,
the likelihood that your wealth will grow to a sum
at least equal to its expected value is less than 50%.
Kritzman, Mark P. (2000) Puzzles of Finance. New York, NY: John Wiley & Sons, Inc.
10. 10ยฉ 2016 Windham Capital Management, LLC. All rights reserved.
EXAMPLE: SAVING FOR COLLEGE
- Initial investment of $30,000
- Annual contribution of $5,000
- Goal of $250,000 in 18 years
Probability of Achieving Target Wealth
11. 11ยฉ 2016 Windham Capital Management, LLC. All rights reserved.
EXAMPLE: SAVING FOR COLLEGE
12. 12ยฉ 2016 Windham Capital Management, LLC. All rights reserved.
DYNAMIC STRATEGY REVIEW
- Set up recurring review to revisit progress towards goal
- Adjust the plan when spending, return environment or past
performance dictate
- Dynamically reviewing goals can increase the likelihood of
success up to 10%
13. 13ยฉ 2016 Windham Capital Management, LLC. All rights reserved.
FURTHER CONSIDERATIONS
- More complex spending rules
- Performance linked
- Index Linked
- Percent of portfolio value
- Constant Growth
- Account for impact of inflation
14. 14ยฉ 2016 Windham Capital Management, LLC
Upcoming Windham Webinars
Windham Software Overview
Thursday, November 17th at 11am
Portfolio Construction and Evaluation
with Jonathan Kazarian
Tuesday, December 13th
www.windhamlabs.com/webinars/
Please Send Questions to Info@windhamlabs.com
15. 15ยฉ 2016 Windham Capital Management, LLC
Disclaimer
The information contained in this presentation (the โPresentationโ) is prepared solely for informational purposes. The Presentation is neither an offer
to buy or sell nor a solicitation of an offer to buy or sell any security, or interests or shares in any fund or strategy. Historical data and other
information contained herein is believed to be reliable but no representation is made as to its accuracy or completeness or suitability for any specific
purpose. Past performance is not indicative of future performance, which may vary. There can be no assurance that the strategiesโ investment
objectives will be achieved. All strategies in this Presentation place investor capital at risk. Future returns are not guaranteed and a loss of principal
may occur.
References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time are
provided for your information only. Reference to an index does not imply that the Windham portfolio will achieve returns, volatility or other results
similar to the index. The composition of a benchmark index may not reflect the manner in which a Windham portfolio is constructed in relation to
expected or achieved returns, investment holdings, portfolio guidelines, correlations or tracking error targets, all of which are subject to change over
time.
Prospective investors should not rely on this Presentation in making any investment decisions. Windhamโs portfolio risk management includes a
process for managing and monitoring risk, but should not be confused with, and does not imply, low risk. Asset classes and proportional weightings
in Windham portfolios may change at any time without notice. Windham does not provide tax advice to its clients and all investors are urged to
consult with their tax advisors with respect to any potential investment.
Please refer to Windhamโs ADV Part 2A for additional information. Windham and its owners disclaim any and all liability relating to this Presentation,
including without limitation any express or implied representations or warranties for statements contained in, and omissions from, this information.