The Pininvest platform prompts the investor to step away from broadly diversified, mostly passive allocation strategies – at least for part of the portfolio and according to the investor’s risk sensitivity
Diversification rules over most investment decisions because, as Markowitz posits in his Modern Portfolio Theory (MPT), the spread across asset categories will reduce exposure to risk
It remains true, of course, that the performance of an individual stock is not as important as the performance and composition of an investor's entire portfolio
However....
Portfolio allocation, based on mean expected returns and exposure to asset volatility, may not protect an investor from major risk exposure when correlations tighten to 1, in case of brutal market reversal
Every asset class will be going down and all will do so at the same time…
Then, as has been experienced repeatedly in recent years, there will be no time to run because computer trading, moving massive ‘passive’ (index-driven) reversal-to-mean investments for pension funds or ETFs, will always come in first
The underlying principles of MPT, portfolio mean return and volatility, should still be verified
In fact, on Pininvest, optimized and reweighted portfolio assets might approach the efficient frontier - promising the highest expected performance at a level of risk acceptable to the investor
The goal of Pininvest portfolio management is to broaden perspectives by mitigating the limits of passive diversification with thematic investments
- A theme-based portfolio allocation is flexible and also modular
- Themes are transparent but also suitable for a diversified portfolio construction
Themes overlay quantitative price analytics with a framework aligned with key market drivers, believed to be relevant by the investor
Themes are portfolio building blocks for the investor
They reflect an investor’s top-down views of a range of medium (up to a year) and long-term trends
Combining distinct - at best weakly correlated - trends, assets of different themes will seek balance between expected return and risk in portfolio construction
Under evolving market conditions, additional assets will be tested virtually for impact on the portfolio’s performance, volatility and diversification before proceeding with the investment
Impact testing and portfolio optimization are key pillars of Pininvest portfolio management
Themes – the building blocks for portfolio construction
Pininvest themes offer a cross-section of mostly U.S. listed companies by industry and by region – and ETFs (exchange traded funds) ranked by targeted strategy
Themes highlight key economic trends, such as digitalization, energy and renewables, climate change, food security, clinical biotech research, industrial components…
The array of themes on Pininvest will continue to expand, covering the US market comprehensively
Performance – Selecting a time frame
By default, the performance of each theme and of its components is computed for a full year – updated every night after market closure
Compared over short periods selected by the investor – from the latest 2 weeks to 6 months – performance and volatility ratios offer unique insights on theme rotation over time, prioritizing various industries, and international markets
By highlighting shifts in market focus over various time spans, the list of the 12 top performers on the Pininvest dashboard reveals trends which could be potentially beneficial to the investor
Indices - Portfolio benchmarks
The selection of a benchmark is key to the relevance of portfolio performance ratio and risk evaluation
Performance and volatility ratios are charted against the chosen benchmark for each theme, for the current portfolio and by measuring IMPACT when new assets are under consideration for investment (or present assets are sold)
A broad range of benchmarks is available to the U.S. investor - market-cap weighted and equal weighted - covering the Total Market (1 200 largest US equities) and 14 sectors
Fund Explorer
With 3 000 exchange traded funds in the Pininvest database, the Explorer screens funds by a range of criteria for the investor to choose from
Alternatively, predefined investment strategies rank best performing funds (coming soon)
Bookmarks
To keep track of the potential of equities and funds, the bookmark tool is available to registered visitors of the platform
The interface remains a workhorse in constructing a portfolio based on personal analysis and preferences, by setting aside assets or entire themes of interest and computing performance since bookmark entry
Investments in selected bookmarks will be evaluated for Impact on performance and volatility of the portfolio - or reweighted in the portfolio by Optimization
Portfolio Management – Investment decisions “what if?”
To make sense in a virtual application, portfolio management must prove useful under two schemes
- facilitating portfolio construction, by honing selections one step at a time
- evaluating actual contribution of each constituent to performance and to risk exposure
What if?
To evaluate how a selected set of assets will modify the portfolio outlook, the command button Invest Selection launches IMPACT
IMPACT is the interface evaluating newly selected assets in the portfolio of destination, in a virtual context before proceeding with the investment
The functionalities for portfolio management challenge the thinking of the private investor
- accounting for correlation between assets in ratio computations
- charting the impact on performance, risk exposure and diversification
The potential impact of any investment choice, in terms of weighting, performance, risk exposure and portfolio diversification, contributes valuable information to the decision
Highlights...
- reweighting the portfolio if the investment decision is implemented
- shifting projected portfolio performance, risk exposure and distribution – based on price history and against a chosen benchmark
With IMPACT, investors will evaluate how potential investment decisions under consideration alter the contribution of each individual asset to portfolio performance and risk
Contribution ranks all assets - currently invested and potentially new investments - by their share in portfolio performance and risk ratios - volatility, Maximum Drawdown, Sharpe and Information Ratio
By breaking down portfolio performance and risk exposure by asset contribution, investment decisions are put in context
Key asset contributors to the portfolio stand out
With weight adjustment of the assets considered for investment as well as partial (or total) sale of current asset holdings, the portfolio will be fine-tuned on the IMPACT inferface before investing
Based on past price data series, IMPACT cannot be expected to forecast future market trends but, by accounting for asset correlation, the interface is an important tool in portfolio construction
Portfolio Management – an Array of Optimal Alternative Portfolios
Optimization with respect to the 'efficient frontier' seeks to improve the projected mix of portfolio performance and volatility
Multiple 'virtual portfolios' approaching the 'frontier' are generated by rebalancing the weights of the selected assets, extrapolating historical price series over the chosen time frame
The investor will gain insights from multiple trade options to improve on current portfolio performance and risk exposure
- screening selected assets for potential 'buys'
- allowing the sale of some current asset positions
Under constraints, defining a number of trades allowed in current positions and of new investments, the algorithm will be picking some new assets out of the selection made by the investor and chose to sell down some current positions to free the cash for the new acquisitions
Within the range set by the efficient frontier, the large number of alternative portfolios presents choices for the investor to prioritize
- performance
- risk exposure
- a mix of both – seeking to maximize the Sharpe ratio
Optimization is indicative of ways to improve on the investor’s current portfolio by suggesting an array of trades