Our mission at Sovereign is to provide clients with wealth management services that result in a performance that meets or exceeds their investment goals. Exposing our clients to undue risk is contrary to this mission. We believe that the tools of Modern Portfolio Theory empower us with a methodology for building superior investment portfolios. This has been tested in all types of market conditions for decades and has consistently protected investor wealth from the perils of non-diversification.

Academic research suggests that 90% of the variation of portfolio returns is determined by the asset allocation decision. Less than 10% of the variation is attributable to security selection and market timing efforts. An outgrowth of this groundbreaking research is what we call "diversification overkill." This refers to the predilection of some well-intended advisors to divide investment capital among an excessive number of asset classes.

We require a long and verifiable stream of returns different enough to add meaningful diversification to a portfolio. When we apply these criteria to our process, the result is an allocation to five asset classes. These include domestic and foreign equities; domestic and foreign fixed income; and alternative investments. Capitalization (i.e., the stock of large companies versus small companies) and valuation (i.e., value stocks versus growth stocks) metrics further classify our equity asset allocation.

While certain asset class returns - those that exhibit significant pricing inefficiencies - are captured through active management, others are accessed through low cost, passive index funds.

Alternative investment strategies can offer diversification benefits for traditional portfolios. We believe that certain alternative investment strategies include a systemic return independent of manager skill. An intelligent allocation to these strategies can significantly enhance the return of a well-diversified portfolio.

Our ultimate objective is to create a portfolio that captures as much of the upside of the stock and bond markets as possible, while exposing clients to minimal downside.  This favorable payoff structure is referred to as positive convexity.