Enhanced Index Investment Approach - International

GCM’s enhanced index investment approach leads to broadly diversified, optimized strategies with low-to-moderate levels of expected active risk.  These strategies are managed to provide portfolios with characteristics similar to their benchmarks with the potential for excess return.

International Approach

Portfolio Signature

During the portfolio construction process, the results of the quantitative evaluation are combined to provide a portion of the Portfolio Signature, which is the overall active exposure of the portfolio to a number of specific fundamental attributes.

At its core, Portfolio Signature refers to the aggregate exposures within a portfolio to each alpha and risk factor. Within the context of international investing, alpha factors have been selected to exploit four types of inefficiencies in the market:

  • inefficiencies caused by emotional investor behavior
  • inefficiencies caused by imperfect information dissemination
  • inefficiencies caused by signaling/agency issues relating to corporate insiders
  • inefficiencies caused by geographic constraints on the flow of capital, labor and information

While a quantitative alpha model produces opinions on individual stocks, the Portfolio Signature provides an integrated view of the total portfolio. The Portfolio Signature concept focuses the team’s attention on the aggregate exposures to each alpha and risk factor. The idea behind Portfolio Signature is to achieve a balanced portfolio that can generate alpha through diversified potential sources while tightly managing risks. The approach identifies optimum ranges for each alpha and risk factor to protect against unintended risks, while positioning it for consistent performance during a variety of market conditions. During the portfolio management process, any outliers from the determined optimum ranges are identified, and optimization rules are implemented to seek out the best securities to trade in order to achieve the optimum portfolio signature -- that is, the optimum aggregate exposures to the alpha and risk factors.