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Risk Management

Investment returns cannot be made without taking at least some risk. Risk management can certainly improve the odds for investors to make money. However, risk management is not a process to eliminate risk. Instead, the goal for most investors to manage or control risk is to ensure that enough reward is generated relative to the risk taken. It is therefore important to identify potential risks, understand and evaluate the sources of these risks, and then make conscious decisions as to which risks to accept and which risks to minimize or eliminate. Risk can be unconsciously taken on especially when they are unintentionally taken on, misunderstood and/or under or uncompensated for. The investment challenge is to generate positive returns and reduce downside risk. Bay Colony attempts to protect client assets while generating a positive rate of return. Accounts are managed by allocating across the various sectors of the global equity, and global fixed income markets.

Our objective, while limiting portfolio risk, is to provide positive absolute portfolio returns. We exercise a flexible strategy in the selection of investments for our client accounts and strive to preserve capital in periods of declining markets. Bay Colony Advisor's holistic risk management approach combines the balance of quantitative tools and qualitative judgment to determine the upside potential with downside risk, supporting consistency of performance. The wide portfolio diversification coupled with prudent risk management may allow for our portfolios to perform in any economic environment.

risk management model for Bay Colony Advisors

Tactical Asset Allocation Process

We employ Tactical Asset Allocation as a means of preserving capital during market declines, reducing investment volatility, and producing enhanced investment returns with less risk. The Portfolio's strategy is to smooth out volatility and mitigate extreme losses without necessarily sacrificing long-term returns. At the heart of this strategy are adjustments to the exposures of a portfolio’s underlying asset classes as guided by both our quantitative risk and expected return forecasts and our deep fundamental analysis, rather than by expected returns alone. Under this approach, we strive to be compensated adequately for the risks we take by adjusting the asset allocation whenever conditions affecting risk-adjusted returns change materially in the economy and financial markets. The general premise of tactical and dynamic asset allocation is to reduce the fluctuation risks and achieve returns that exceed the target benchmark. 

Dynamic Investment Process

We periodically dynamically adjust the portfolio allocations in our risk based portfolios to optimize returns reflective of the economic cycle.  This long-term strategy provides tactical adjustments and tilts the portfolio to accommodate current economic trends, putting greater weight on asset classes that have positive momentum.  We believe the price you pay for an asset class is the most important determinant of returns drivers over time.  At any given time in the economic cycle, our asset allocation strategy seeks to combine our judgment of value with our sense of momentum, making our largest allocations when our evaluation of value and momentum are aligned.   We apply risk management disciplines throughout our asset allocation and security selection process and evaluate fundamental and technical analysis in our security selection process..  

86 Baker Avenue Extension, Suite 310 | Concord, MA 01742 | 800.320.1912