Efficient Portfolio Strategy

Efficient Advisors offers clients a variety of structured, long-term, globally diversified portfolios that are primarily constructed using exchange traded funds (ETFs).  ETFs, when available, offer a low-cost, fully transparent, passively managed, indexed approach to investing.  These portfolios have different risk and return characteristics as well as different time horizons.  Some of our portfolios use alternative asset classes within the portfolio to help mitigate the potential downside volatility of the stock and bond markets.  There is no requirement that clients use the portfolios with alternative asset classes and clients are encouraged to discuss with their financial advisor the pros and cons of
doing so.

Three Factor Model
Eugene Fama, Sr. and Kenneth French of the University of Chicago identified that there are three factors that explain investment returns in a portfolio.  By constructing portfolios based on this research, you have the potential to capture returns in the market.  Until Messrs. Fama and French developed this three factor model, most investment portfolios were constructed utilizing a single factor approach. This single factor approach known as the Capital Asset Pricing Model (CAPM) posits that stocks are riskier than bonds but provide a higher return than bonds.  William Sharpe (1990 Noble Prize) first expressed CAPM in the early 1960’s.  Messrs. Fama and French discovered the other two factors in the early 1980’s by researching stock market returns going back to the early 1920’s. 

Efficient utilizes the Three Factor Model by engineering and constructing portfolios based on these three factors:

1. The Market Factor-what is the mix of stocks to bonds in the portfolio?
2. The Size Factor-what is the mix of small stocks to large stocks?
3. The Value Factor-what is the mix of value stocks?

Rebalancing
Efficient monitors portfolios to ensure that asset categories do not deviate from their intended asset allocation weights and targets.  By selling asset categories that have exceeded their target weights and buying more of the underperforming targets, Efficient is adhering to the maxim of selling when prices are high, and buying when prices are low.   This monitoring process is an ongoing discipline that is irrespective of future economic forecast or stock market outlooks.