Philosophy and Process

PMC’s philosophy is rooted in modern portfolio theory, emphasizing that asset allocation is the most critical determinant of an investment program’s success and that history does not repeat itself but can be used to help develop estimates of future market behavior.

The following PMC principles provide the framework for building diversified, risk-managed portfolios across a broad spectrum of client requirements.

  • The global capital markets are largely efficient in the long run
  • There is a trade-off between risk and return
  • Investors are not compensated for risk that can easily be diversified away
  • The mean-variance and capital asset pricing model frameworks are reasonable models of the risk/return trade-off 1
  • Active investment managers can and do add value
  • Combining diversified asset allocation portfolios with intelligent selection of investment managers is the art of perfecting the portfolio

 

[1] The mean-variance portfolio optimization theory of Markowitz (1952, 1959) is widely regarded as one of the major theories in financial economics. It is a theory on the choice of portfolio weights that provide optimal tradeoff between the mean and the variance of the portfolio return for a future period.

The Capital Asset Pricing Model (CAPM) is used to determine a theoretically appropriate required rate of return of an asset, if that asset is to be added to an already well-diversified portfolio, given that asset's non-diversifiable risk. The model takes into account the asset's sensitivity to non-diversifiable risk (also known as systematic risk or market risk), often represented by the quantity beta (β) in the financial industry, as well as the expected return of the market and the expected return of a theoretical risk-free asset.

Investing (including mutual funds and ETFs) carries risk, including the loss of principal, and there can be no assurance that any investment strategy will provide positive performance over a period of time. The asset classes and /or investment strategies described above may not be suitable for all investors. Investors should first consult with an investment advisor before investing. Investment decisions should be made based on the investor’s specific financial needs and objectives, goals, time horizon, tax liability and risk tolerance. When investing in managed accounts and wrap accounts, there may be additional fees and expenses added onto the fees of the underlying investment products. For a complete description of all fees, costs and expenses, please refer to the Envestnet Form ADV Part 2A or Form ADV Part 2A - Appendix 1 as applicable. Past performance is no guarantee of future results. Neither Envestnet, PMC nor its representatives render tax, accounting or legal advice.