Investment Process

Enlightened Investing is a disciplined and repeatable process, the principal steps of which are Investment Selection, Capital Market Forecasting, Portfolio Construction and Portfolio Rebalancing.  Island Light attempts to add investment value at every step in the investment process.

Investment Selection

For the Island Light Portfolios, we select passive index instruments, such as Exchange Traded Funds (ETFs) and index mutual funds, for implementing the investment mandate. The funds are chosen for low expense ratios, low tracking error, seasoning and liquidity. From time to time, when more active funds are selected, Island Light looks for relative performance, liquidity, investment consistency, and manager breadth. In every case, the mix of securities is designed to add value from risk diversification. We use only passive index ETFs in our Island Light portfolios

Capital Market Forecasting

We seek to drive risk-adjusted return from the selection of a wide range of asset classes and investment styles. We combine observations from history, advanced statistical techniques, Bayesian forecasting and group estimates to develop the forecasts.  Clients may use our investment classes or select classes and forecasts of their own.  In either situation, the client receives the benefit of some of the best thinking in capital market forecasting available.

Portfolio Construction

Asset weightings in the portfolios are developed using the most advanced portfolio optimization technology now available, Michaud optimization from New Frontier Advisors.  Michaud optimization, or resampled efficiency, is provably superior to other available optimization technology and is used by the most sophisticated investors in the world.  Island Light principals have extraordinary insight to the use of Michaud optimization to improve our investment portfolios.

Portfolio Rebalancing

Timely rebalancing of a portfolio and knowing when to trade are critical to the long term success of an investment allocation. We use a combination of technology and insight to help us identify when to change portfolio holdings to reflect new market information.  Our rebalancing technology, that is a statistical process that measures the difference between the ideal portfolio and the current portfolio, gives important information about the benefit of trading.  When a rebalance is called for, we will implement the changes using best practices for trading securities.

For a short video presentation of our portfolio construction and rebalancing technology, please go to our “Introduction to Michaud optimization” video.