We've backtested many popular passive investing strategies and found them to be seriously flawed when scrutinized. Modern Portfolio Theory (MPT) is the bedrock upon which so many passive strategies are built. It relies on the assumption that asset class returns, volatility, and correlations are predictable and steady. What we found was that not only do these vary wildly across many timeframes, there seems to be a trend toward increasing correlations, which undermines the ability of MPT to properly diversify against risk. As a result, we've adopted an active investing style which responds dynamically to changing market conditions and valuations. This conclusion was the direct result of testing 4-5 decades of historical market data.
Sure, I'll give an example. An increase in cyber threats was identified through our analysis of historical market data. This wasn't just affecting large corporations, but also small businesses who really struggle with these challenges. Recognizing the opportunity, we decided to invest more resources into cybersecurity solutions. Our goal wasn't just to profit, but to provide a service that would benefit these small businesses immensely. This investment proved strategic as demand only grew. Simply put, using historical market data as a guide helped us make smart, profitable decisions.