Limited Risk Portfolio
Capital Appreciation Portfolio or Limited Risk Portfolio
The basic philosophy of the Limited Risk Portfolio is that opportunities exist within the “risk markets” defined as domestic and international equity markets, commodity markets, high yield markets, preferred equity markets, currency markets, and options markets, that allow for attaining significantly higher risk-adjusted returns than long only strategies, while maintaining an absolute return focus. The Limited Risk Portfolio attempts to capture investment opportunities based on both fundamental and technical research while going either long or short various markets (or at times employing long/short strategies to capture relative value opportunities). Ideally clients will allow for the use of margin (i.e. to leverage and for efficient short positioning) as well as options based strategies, but both require special documentation at Fidelity.
The Capital Appreciation strategy may include tactical allocations to (i) ETFs and index funds with exposure to domestic and international equities including emerging markets (with capitalization, sectoral, growth / value, and country biases); (ii) allocations to High Yield bond funds; (iii) allocations to Commodity funds and ETFs; (iv) allocations to Preferred Equities, (vi) allocations to REITs, and (vii) Opportunistic allocations to individual equities or securities (when compelling and appropriate). The basic approach is “top-down” and “global macro” in nature, meaning that it is rare that individual, non-diversified company securities are included in the Capital Appreciation Portfolio though at times this can and will occur.
The basic investment process is based on both initial and ongoing due diligence, risk monitoring, and risk management oriented strategies to capture “positive alpha” opportunities within the global markets on either the long or short side of the market. Leverage, if utilized at all, is kept to a relative minimum though this could change over time – i.e. deep out of the money long-dated long option strategies may be employed at times to take advantage of market dislocations. The process starts with fundamental research, historical price data analysis, portfolio construction and very active risk monitoring and risk management to attempt to ensure preservation of capital even within stressed market conditions.
- Primary research sources
- Wall Street / institutional asset management network
- Personal research and analysis
- Utilization of risk management tools (e.g. Bloomberg historical pro- forma, VaR, and stress testing analysis)
- Daily monitoring and analysis
For further details download a copy of our Investment Advisory Services presentation on this page.