On Thursday, January 5th, the Salt Creek Investors team kicked off the new year by joining President of Sortino Investment Analytics Jim Kaffen to host a conference call highlighting the new Salt Creek Investors platform.
“Think of Salt Creek Investors as a personal research and analytical department for independent financial advisors.”
– Jim Kaffen, President of Sortino Investment Analytics
Since its launch nearly one year ago, Salt Creek Investors has been outperforming benchmarks in a very difficult environment. Our strategy, powered by Nobel Prize winning methodology, is a unique solution with unbiased research through our exclusive partnership with Sortino Investment Analytics.
SALT CREEK INVESTORS UTILIZES AN UPSIDE POTENTIAL/DOWNSIDE RISK RATIO FRAMEWORK
The Upside Potential/Downside Risk Framework uses uniquely different risk measurement statistics.
Upside Potential Ratio: The average return above the ERO measures how often and how far above the Essential Return Objective a portfolio’s returns are likely to occur. Upside Potential, a term coined by Nobel Prize winner Daniel Kahneman, captures investors’ perception of risks concerning gains as opposed to risk concerning losses.
PENALIZING ACTIVE FUND MANAGERS FOR DOWNSIDE PERFORMANCE
Downside Risk Deviation: A measure of portfolio risk developed by Peter Fishburn at the University of Pennsylvania. Downside Deviation defines risk as not achieving an investor’s essential return objective. By measuring only deviations below the target return, Downside Deviation distinguishes between “good” and “bad” returns—good returns are greater than the target return, and bad returns are below the target return. Only the latter represents risk. In addition, the more returns fall below the target return, the greater the risk.
These measures are more informative than standard deviation and risk adjusted return ratios because they provide magnitude, frequency and let you know whether past returns met or exceeded the Essential Return Objective. They are more stringent because they rely on monthly data and managers are penalized more severely for their downside performance than they are given credit for exceeding the Essential Return Objective.
BOOTSTRAPPING TECHNIQUE
Our partner, Sortino Investment Analytics, incorporates Efron and Tibshirani’s (Stanford 1993) Bootstrap Method into the Salt Creek Investors research process.
The Bootstrap Method analyzes active manager performance and develops better estimates of risk and return. With the Bootstrap Method, a manager’s performance is simulated by developing a distribution of possible returns through random sampling with replacement. 36 months of actual returns each generates a distribution of 2500 potential returns. It allows us to look at what happened but also what best and worst cases could have happened.
Bootstrapping avoids the dual problems of time sensitivity (beginning and ending dates that cause good and poor performance to fall off the scale) and limited data (because it is not dependent on an arbitrarily selected single period of history). By randomly sampling from a manager’s actual historical monthly returns to simulate future performance this method measures what could have happened rather than just what did happen.
All information from our partner’s website: www.sortinoinvestmentanalytics.com
HOW DOES IT WORK?
- The Salt Creek team screens more than 20,000 actively managed mutual funds.
- The Salt Creek team then sends over 36 months of blind returns for over 4,000 funds to our partner, Sortino Investment Analytics.
- Sortino performs rigorous analysis using the monthly returns.
- Our CFO, Jim Baldwin, adds his qualitative analysis, resulting in the selection of funds for our 5 model portfolios.
WHY SALT CREEK INVESTORS?
Salt Creek Investors was created by LaSalle St. Investment Advisors because advisors want to spend less time researching and analyzing products and more time understanding the needs of their clients. We also wanted to create a solution that helps advisors navigate through the upcoming DOL changes.