We believe that a high degree of diversification is essential since it is very difficult for investors to consistently pick the asset classes that will perform the best each year. By having exposure to a variety of asset classes, you as the investor will participate in the gains from the top performing asset classes.
When designing asset allocations, we weight the equity portion of the portfolios to include slightly more small cap and value stocks than would be included in strict cap-weighting. On a risk-adjusted basis these types of stocks have outperformed large cap and growth stocks over long periods of time.
Data also shows that passive management — owning baskets of a large number of different stocks in their proportion to the market — is a more efficient and cost-effective method of investing over active management which requires an investment manager to correctly pick the best performing stocks and perform many costly transactions.
We rebalance portfolios at appropriate intervals to maintain effective diversification and