The iMIPS Investment Philosophy
The iMIPS rely on an investment philosophy that is based upon the latest academic research, such as the Modern Portfolio Theory, Fama-French Three-Factor Model and the latest discoveries in behavioral economics via semantic analysis. Modern Portfolio Theory seeks to reduce portfolio risk while increasing portfolio returns. In addition, INOVE believes that investors should be compensated for the risk that is assumed by their portfolio holdings. Meaning, in a perfect world, investors should make more money because they take more risk. This is accomplished by following the four essential elements of Modern Portfolio Theory, which are as follows:
- Security Valuation: To describe a universe of assets in terms of expected return and expected risk. Meaning, to assign a market value and level of risk to a given universe of investment(s) at a specific point in time.
- Asset Allocation: To determine how assets are to be invested among varied classes of investment, such as stocks and bonds.
- Portfolio Optimization: To reconcile risk and return in the selection of the securities to be included within a given portfolio. For example, we must determine which potential portfolio holdings offer the best opportunity for positive return for a given level of expected risk.
- Performance Measurement: To divide each investment’s performance into market-related and industry specific securities related classifications.
As a result of our discipline, investing in more than one asset class, an investor can reap the benefits of diversification, chief among them being a reduction in the riskiness of the portfolio. The Fama-French Three-Factor Model, through research, has found that over long periods of time, value stocks outperform growth stocks and, similarly, small cap stocks tend to outperform large cap stocks. Recent developments in the area of semantic analysis and data analytics assist us in our understanding of human behavior. By gaining a greater understanding of human behaviors, we now are focused upon isolating economic leading and predictive indicators versus the analysis of lagging indicators. IMIPS is founded on the premise that science, supported by rigorous academic research, combined with semantic analysis offers one of the more innovative approaches to investing. The iMIPS investment philosophy is based on the following basic principles:
- Develop highly diversified portfolios of correlated and non-correlated investments that feature a broad range of asset classes, investment styles and market sectors.
- Use market-based investments (index of security holdings), not manager-based investments (not individually selected stock and bond investments). By using index funds, iMIPS removes a level of stock and bond selection risk.
- Hold the investments for long periods of time, yet be flexible and prepared to exit a position.
- Periodically reallocate investments as conditions warrant.
- Strategically rebalance portfolio to reduce risk and capture growth opportunities.
IMIPS are highly diversified, invests primarily in mutual funds and ETFs, and features as many as thirty (30) asset classes and investment management styles.