Overview Philosophy
Process

Universe

Acadian believes that the larger the universe of potential investments, the greater the potential opportunity an active manager has to add value. To this end, Acadian follows more than 40,500 stocks globally in over 100 countries, across all industries and within all capitalization ranges. This expansive coverage of essentially all publically traded stocks globally allows us the potential to uncover opportunities often overlooked by others

Risk

Acadian's ability to understand, model, and forecast risk is of critical importance to a strategy focused on low risk stocks. In constructing our managed volatility strategies, we focus on improving risk-adjusted returns net of trading costs. Two important considerations related to this goal are our decision to incorporate both correlations and return forecasts into our portfolio construction process.

Acadian emphasizes minimizing total portfolio risk when we build low risk portfolios. This decision puts emphasis on choosing stocks with low systematic risks (low beta) and, to a lesser extent, on stocks with low total risk. The primary difference between a low risk portfolio and a portfolio comprised of low risk stocks is that the correlation between stocks influences the holdings of former, but not the latter. The low risk portfolio approach produces a portfolio of low risk stocks with low correlations to each other. This produces a lower risk portfolio than simple sorting-based approaches. The primary benefit of Acadian's approach is that a lower volatility portfolio with the same annual return has the potential to offer higher geometric or compounded returns. The benefits of compounding are well known and both approaches benefit from lower volatility than the capitalization-weighted index. However, the low risk portfolio approach more fully exploits these benefits by utilizing correlations between stocks in an effort to minimize volatility at the portfolio level.

Forecast

We employ a multi-dimensional process of converting wide-ranging investment insights into return forecasts. This process includes both bottom-up and top-down views on stocks and markets which we combine to form world-relative views on all companies globally. To account for changing market environments, we dynamically weight our factors based on persistence of payoffs, market conditions and expectations for subsequent returns. Acadian's ongoing research has resulted in important refinements to traditional fundamental factors over time, added new behavioral and technical elements to our forecasts, and ultimately enabled Acadian to consider multiple aspects of security mispricing in our stock forecasts.

Our managed volatility strategy takes the low volatility concept a step further by adding persistent exposure to Acadian's return forecasts. Once we consider market frictions like transaction costs, liquidity and certain prudent constraints we can choose among a number of potential portfolios with approximately the same expected risk characteristics. Acadian’s managed volatility approach chooses the portfolio with the highest expected return among all of these candidate portfolios, resulting in a portfolio which we believe may achieve higher returns over time as a function of its exposure to our return forecasts.

Construction

Acadian's portfolio construction process combines return forecasts with risk forecasts, transaction cost estimates and portfolio constraints. The goal of this process is to deliver a well diversified portfolio of low risk stocks that maximizes risk adjusted returns, net of transactions costs. The process is objective and disciplined to insure that we can efficiently incorporate changes in risk, cost and liquidity forecasts over time.

Trading

The discipline and consistency of our process extends to our focus on transacting efficiently in the markets where Acadian invests on behalf of clients. To accomplish this, we employ a systematic trading process that utilizes a network of more than 26 counterparties to allocate trades according to execution skill within a given market segment. The objective of this process is to achieve high rates of execution and minimize market impact.

PM

Oversight of the process by Acadian’s portfolio management team is another key aspect of our process. This oversight includes approving all trades before each portfolio rebalance, overseeing current portfolio positions, analyzing risk exposures, and investigating factors driving performance. 

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