We understand that your portfolio is more than just investments; an investment portfolio represents a lifetime of hard work, goals and dreams for the future, and financial security. We strive to help clients and advisors reach their many goals while maintaining an intense focus on diversification, risk management, and drawdown limitation.
Broad Strategy Offering
Martello utilizes exchange-traded funds (ETFs) to deliver a comprehensive offering of diversified investment strategies to meet our clients’ individual needs. Though every strategy has unique goals, each draws from the common philosophy of data-driven, risk-focused portfolio management.
Emphasis on Diversification
Managing risk through portfolio diversification is a staple of prudent investing. At Martello, we strive to deliver superior risk-adjusted returns through a critical focus on diversification. To reduce risk, we emphasize diversification at each stage of the investment process, from our ETF universe to our methods of analysis.
Systematic Process
A systematic process drives the core of our investment approach. We use market data to generate investment decisions, eliminating emotionally-biased decision-making by using a rules-based methodology. Martello’s strategies are not “black box,” but instead provide identifiable entry and exit points for every position so that we can determine why each trade is made.
Our process starts with the collection of a large amount of data. We not only collect data specific to market prices, but also other useful data series that allow us to infer important information about market dynamics and underlying economic conditions. We combine our collected data to develop market signals, which work independently and in combination to deliver holistic analysis of markets.
Minimizing Drawdown
Portfolio risk is estimated in a variety of ways, but we view large drawdowns as most destructive to an investor's ability to generate wealth over the long term. It goes without saying that the more an investment loses, the harder it is to get back to even. The reason for this is known as volatility drag.
Suppose you have a $100,000 portfolio that experiences a -20% return in one year and a 20% gain in the next year. Though the “average return” is zero, the investor actually loses money over the two-year period. In the first year, the portfolio loses 20%, or $20,000, to finish the year at $80,000. The next year, the portfolio gains 20% of $80,000, or $16,000, to finish the year at $96,000. In order to fully recover the $20,000 loss in the second year, the portfolio would have needed to gain 25% on $80,000. If the investor first gained 20% followed by a 20% loss, the results are the same. The first year gain of $20,000 results in a portfolio worth $120,000 at the end of the year, followed by a $24,000 loss (20% * $120,000) in the second year, to close the two-year period at $96,000.
Volatility drag is more pronounced as losses worsen. A 50% loss, for example, requires a 100% gain (meaning the portfolio must double) to get back to even. Such a large loss generally leads to prolonged recovery periods. In the Great Financial Crisis, the S&P 500 Index lost nearly 51% from Nov 2007 – Feb 2009 and did not recover those losses until March 2012. This means the Index went 52 months without any new gains.
ETF Investment Universe
Our strategies contain a diverse selection of investable markets by asset class and geography, utilizing exchange-traded funds (ETFs) as proxies for asset class exposure. We believe ETFs have several advantages for constructing diversified portfolios including:
- Low cost: ETF operating expenses are generally lower than mutual funds, reducing the total fee paid by clients.
- Liquidity: The total ETF market is approximately $3 trillion, and most funds trade with tight spreads.
- Broad offering: ETFs are available for nearly every asset class, including equities, fixed income, commodities, and foreign exchange markets.
- Diversification: ETFs provide exposure to an entire asset class or sector, reducing idiosyncratic risk.
Commitment to Research
In financial markets, the lasting edge is innovation. Our open research environment encourages new idea generation. We strive to incorporate new uncorrelated ideas into our portfolio mix. We evaluate the impact of new models on the existing portfolio, as the new model should improve portfolio risk-adjusted return for inclusion.