Collins Stewart Wealth Management (CSWM) has launched a portfolio construction framework it claims addresses the major shortcomings of traditional risk management processes.
The framework produces a set of portfolios - the Risk Enhanced Multi Asset Portfolios (REMAP) - based on a risk model designed to deal with market turbulence by introducing what CSWM terms a "sensible amount" of mathematics into the investment process.
CSWM said the portfolios have been launched to address what it considers a wrong approach to risk across the industry.
"The biggest failing of traditional frameworks stems from the assumption that correlations are stable through time," said CSWM global strategist Robert Jukes.
"As the credit crunch demonstrated, when risk assets deliver unusually large negative returns, they tend to become significantly more positively correlated with other risk assets, with which they may not normally have a strong relationship."
The firm said REMAP puts risk at the forefront of the investment process, accounting for portfolio risk during periods of market stress.
Professor Stephen Satchell, fellow at Trinity College, Cambridge, critiqued the CSWM risk framework.
"For many years the wealth management industry has rather avoided the use of any mathematics in designing investment processes," he said.
"This has now changed and the industry is gradually becoming more aligned with other forms of quantitative asset management."
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