Strategic asset allocation is the process of developing an optimal combination of investment assets based on the client’s return goals and risk tolerance and to maximize the after-tax return. To perform asset allocation modeling, CTC developed PORTAX, a state-of-the-art asset allocation software package. PORTAX is a multi-period, after-tax mean variance optimizer. It models each asset class within a portfolio on an after-tax basis and takes into account spending flows and taxes associated with rebalancing the portfolio.

In light of recent market volatility, CTC has developed a new stress test and drawdown analysis for client portfolios. The downdraft in the markets over the past several months has exposed some of the weaknesses with traditional asset allocation software that use mean-variance optimization to develop balanced portfolios.  CTC recently built a solution which improves upon standard optimization technology and remedies many of its deficiencies.  This software conducts mean variance optimizations but includes a very important component:  a drawdown stress test that steers the allocation away from portfolio combinations that historically have had large drawdowns.

CTC’s asset allocation process is based on long- term asset class return and risk forecasts and asset class correlations developed by CTC. Recognizing that asset classes may be overvalued or undervalued at any one point in time, CTC also advises clients on tactical allocation.