What is a Diversification Overlay? AND Why would I implement One?
A diversification overlay is a custom-made portfolio strategy designed to fit around your existing core portfolio strategies. Implementing this kind of overlay will efficiently increase the overall diversification of the portfolio. The overlay repositions a minimum amount of capital to not disrupt existing positions, managers and strategies, but rather holistically embrace the current portfolio.
Why would I implement a Diversification Overlay?
- Better stabilize a portfolio in choppy or volatile markets
- Meet and exceed high Fiduciary standards
- Morph to a more systematic endowment model
- Capital preservation
- Take a more bearish posture without succumbing to market timing
- Identifies and completes allocation gaps
- Employ diversification as a competitive differentiator
How does it work operationally?
Because these are implemented on a custom basis, the current portfolio holdings are sent to Gravity Capital Partners and a draft portfolio is created. We may work with Advisors to select attractive themes that the diversification overlay will utilize, but the ultimate selections and weights for those securities is a product of our Gsphere.net patented technology. Diversification Optimization™; recently demonstrated in the Journal of Indexes as the best allocation science in the industry. (LINK)
When the decision is made, a new account is opened and funded at select custodians. Gravity Capital Partners is hired by the Advisor as a discretionary third party manager. The amount allocated to the overlay is agreed by all parties based on analysis of the optimal impact to diversification, systematic risk,risk and return forecasts and scenarios.
Available themes are:
- Hard Assets
- Strategic Alpha
- Alternative Income
- Crisis Overlay
- Tactical Alpha
Other custom themes can be produced, especially with a systematic selection methodology.
With enterprise minimums as low as 5 million dollars you then are also granted access to Gsphere.net for running proposals and analytics. More advanced users can inquire about co managed collaboration models or more sophisticated technology licensing opportunities.
How much does it cost?
Diversification Overlays are custom priced based on account size and complexity. Strategies involving leverage, derivatives or short selling are available for qualified accounts with incentive based pricing.