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Article

Adaptive Portfolios and the Power of Diversification

Jürgen Vandenbroucke
The Journal of Investing joi.2019.1.089; DOI: https://doi.org/10.3905/joi.2019.1.089
Jürgen Vandenbroucke
is expert general manager and head of innovation at KBC Asset Management NV in Brussels, Belgium; a reseach associate at the Edhec Risk Institute in Nice, France; and a lecturer at University of Antwerp, Belgium
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Abstract

The article gives a qualitative description of an advisory or discretionary investment process that manages the emotional aspect of investing. Portfolios are adaptive, meaning they automatically adjust their allocation in response to changing market conditions. The adjustments are model-based and transparent, and align in terms of frequency and magnitude with the investor’s emotionality. The process looks beyond the risk-focused paradigm in relation to investor profiling, product positioning, and portfolio construction. First, investor profiles distinguish between the attitude toward risk and the attitude toward loss. Second, products differentiate in terms of variance and in terms of skewness. Finally, adaptive portfolios represent a client centric combination of products that lifts the power of diversification to a higher level and ultimately contributes to long term buy-and-hold investor behavior.

TOPICS: Mutual fund performance, passive strategies, mutual funds/passive investing/indexing

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The Journal of Investing: 31 (4)
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Adaptive Portfolios and the Power of Diversification
Jürgen Vandenbroucke
The Journal of Investing Jun 2019, joi.2019.1.089; DOI: 10.3905/joi.2019.1.089

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Adaptive Portfolios and the Power of Diversification
Jürgen Vandenbroucke
The Journal of Investing Jun 2019, joi.2019.1.089; DOI: 10.3905/joi.2019.1.089
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