• Legal Information
  • Contact
  • News & Publications
  • Press articles
TOBAM TOBAM
✕
  • About us
  • Investment Philosophy
  • Sustainable Way
  • Products Offering
  • > Private access
  • Our Investment Philosophy
  • The Anti-Benchmark® Strategy
  • In the Beginning was…Research
  • Back to Markowitz
  • Diversification Dashboards and Research Articles

Maximum Diversification®

Our Investment Philosophy

TOBAM’s investment philosophy is based on maximizing diversification in order to capture the risk premium of an asset class. While many managers focus upon ‘alpha’ to contribute to performance, less attention may be dedicated to improving ‘beta’ which often provides the major contribution to performance and risk. The most common way for investors to obtain ‘beta’ exposure is through a market cap-weighted strategy; however, academic and practitioner research shows that other strategies for gaining ‘beta’ exposure regularly outperform the market cap weighted strategies, leading to inefficiencies in the allocation. TOBAM believes that these inefficiencies arise from insufficient diversification in the market cap-weighted strategy.

Decades of academic studies since Harry Markowitz (1959) and William Sharpe (1964) have explained why diversification should play a key role in portfolios’s asset allocation.

Yves Choueifaty after years of academic research introduced a measure of diversification: the Diversification Ratio®. The details of this were initially published in 2006 in the United States Patent and Trademark Office (Choueifaty, “Methods and Systems for Providing an Anti-Benchmark Portfolio, May 2006) and later in 2008 in the Journal of Portfolio Management [Choueifaty & Al, “Toward Maximum Diversification” Fall 2008].

TOBAM’s Anti-Benchmark® strategy is based on the Maximum Diversification® approach, designed to maximize the degree of diversification when selecting the weighting of assets in the portfolio allocation process. The Diversification Ratio® is maximized to produce a portfolio designed to access risk premium evenly from all the effective independent sources of risk available in the market at any given time. TOBAM’s approach is fully quantitative and does not use any predictions of expected return, neither for the assets nor for any underlying risk factors.

Maximum Diversification®

The Anti-Benchmark® Strategy

The Anti-Benchmark® strategy aims to capture the full risk premium of an asset class available by maximizing diversification, delivering outperformance whilst reducing volatility.

The Anti-Benchmark® strategy is designed to create portfolios proposing to lie closer to the ex-post efficient frontier than the market cap portfolio over a market cycle. Anti-Benchmark® portfolios access the available risk premium in a risk efficient manner and intend to typically enhance performance vs. the benchmark by 3%-5% p.a. via greater diversification for equity portfolios, while also reducing volatility by 20-30% per annum over a market cycle. For credit portfolios, the strategy endeavours to outperform the benchmark by 1-2% per annum with less volatility as well.

 

 

View the Full range of TOBAM’s Anti-Benchmark® Strategies
 

Maximum Diversification®

In the Beginning was…RESEARCH

« Toward Maximum Diversification »
by Yves Choueifaty et Al – Journal of Portfolio Management, Fall 2008
The Maximum Diversification ® approach and Anti-Benchmark ® strategy were developed and refined in-house, and are maintained by the Research team.  21 investment professionals are Involved in research, working on a day to day basis to increase the theoretical foundation for the Anti-Benchmark ® investment approach – making it one of the largest, if not the largest, research team dedicated to a single investment strategy in the asset management industry. Research is organized around three areas (theoretical support, implementation innovation and product research)
  1. Theoretical Support:
  • Discover, explore and obtain a full understanding of potential new sources of risk premium
  • Although research may be technical and mathematical in nature, we strive to produce results that make common financial and economic sense, and can be intuitively explained to our investors and partners.
  • Share our knowledge with a selected audience, through our ties with leading academic institutions, leading long-term investors as well as renowned academic journals.

 

  1. Implementation Innovation: Develop and refine applications for the Anti-Benchmark® investment approach

 

  1. Product research & Development: Pursue innovation and new product development

TOBAM’s research effort is led by Tristan Froidure, who has over 21 years of investment experience researching and developing quantitative investment and trading strategies. The research department makes recommendations to the Executive Committee on potential improvements in the implementation of investment strategies. The Head of Research works closely with Yves Choueifaty to set the company’s research agenda.

« Toward Maximum Diversification »
by Yves Choueifaty et Al – Journal of Portfolio Management, Fall 2008
« Properties of the most diversified portfolio »
by Yves Choueifaty, Tristan Froidure and Julien Reynier – The Journal of Investment Strategies, Spring 2013
« Portfolio Rho-presentativity »
by Tristan Froidure, Khalid Jalalzai, Yves Choueifaty et Al – International Journal of Theoretical and Applied Finance, vol. 22, 2019

“The Bourbaki Spirit”

By Tristan Froidure, Head of Research

In the 1930s a group of French mathematicians came together to reformulate modern mathematics from a perfectly rigorous, self-contained point of view. The group used the pseudonym Nicolas Bourbaki.

Here at TOBAM, we believe in what we call ‘the Bourbaki spirit’. We share Bourbaki’s refusal of concepts that are not precisely defined. We dedicate a significant amount of time focusing on definitions, which we view as a prerequisite to conducting sound and original research work.

This means we avoid using conventional wisdom when it uses unclear definitions. While our goal is not to produce an encyclopaedic and formidable body of work such as the “Éléments de mathématique”, this spirit has a distinctive influence on our approach. Our common research path involves going from clear definitions to establishing mathematical properties and then – and only then – conducting empirical tests to verify what could be expected from theoretical results.

Having these high research standards, we place a lot of efforts on research and have built a team of researchers and portfolio managers – who participate in or lead research initiatives – that are highly skilled, experienced and diversified. The three main research axes of our research team are:

  • Theoretical research, which includes portfolio construction, (essentially) convex optimization, statistics & econometrics.
  • Implementation research, in order to develop and refine the Anti-Benchmark approaches.
  • Generalization research: apply research results to other environments.

We work with some of the most sophisticated institutional investors in the world and we consider that applying our expertise and research capabilities to their complex challenges is a crucial step in building a solid and grounded research team. On top of our three main research axis, we hence spend a significant amount of our research efforts finding customized answers to challenging issues raised by our clients, in an effort to ensure no stone is unturned.

A diversified and effective research team

The team is encouraged to be as “out of the box” in its approach to ‘conventional wisdoms’ as possible. As such the diversity of the team is a critical part of how well it functions. We have a large range of expertise, from highly skilled mathematicians, engineers, economists, traders, all of which feeds in to the team’s ability to look at problems or assumptions from a very broad spectrum of viewpoints. Furthermore, research is conducted without a formal hierarchy. When it comes to their work, researchers are encouraged to exchange and develop ideas free from the constraints of a pecking order, which affords the team considerable freedom in their research approach and takes full advantage of the diversity of the team.

The team has a strong academic contingent, but our main goal is to focus on our own research projects and to focus less on academic literature to feed into our research process. In fact, publishing our results in the form of academic level papers internally is one of our main research goals. Indeed, the process of summarising our findings provides additional coherence to our work, and helps us focus on delivering research of the highest standard.

We first share our findings with our clients, which contributes to set the foundations of a knowledge sharing spirit. We have also published articles in journals to benefit from open debate from time to time. In the end, our ultimate agenda is to serve our clients and being fully dedicated to their needs and projects.

Research Transparency: an intelligent investment

TOBAM’s flagship portfolio construction method (Most Diversified Portfolio, or MDP) has been published for all to see. In fact, we like to think of ourselves as a ‘crystal box’, disclosing and openly discussing what we do with our clients. In today’s financial world, which has been rocked by a series of scandals, clever transparency is a winning bet. I think we would have fewer assets under management if we operated as a ‘black box’. Being transparent has also helped us systematically focus on and improve the weakest parts of our approach – a chain is only as strong as its weakest link.

Finally, we have always viewed transparency as a necessary condition for being taken seriously by large institutional investors.

We believe that the real world incarnation of the MDP under the brand “Anti-Benchmark” has the potential to replace traditional market capitalization weighted benchmarks as a core portfolio. This is thanks to its intrinsic qualities, and to the many resources TOBAM dedicates to transparent research.

Simple ideas are beautiful

I personally believe that the “best” ideas are simple, in Khalil Gibran[1]’s sense: “The obvious is that which is never seen until someone expresses it simply.” Take for example the notion of Portfolio Diversification which TOBAM first introduced in 2006. Its formulation is very simple and is becoming obvious today to Asset Management practitioners, academics and students. Ten years after its first publication, the research we are conducting today is still leading us to very exciting new results that are directly connected to it.

 

 

[1] Poet and writer, author of “The Prophet” (1923).

Maximum Diversification®

Diversification Dashboards and Research Articles

Diversification Dashboards

We publish on a monthly basis, the diversification dashboard, which presents the Diversification ratios for each strategy-related investment universes as well as a different research topic debated each month to improve our client’s awareness and grasp on our Maximum Diversification® approach and Anti-Benchmark® strategy.

Diversification Dashboards 2020

DECEMBER – A SUSTAINABLE WAY – DISRUPTION,  REINVENTION, REFLECTION

OCTOBER – INVESTING SUSTAINABLY WITHOUT GIVING UP MARKET PREMIUM

AUGUST – BITCOIN: A UNIQUE DIVERSIFIER

JUNE – HIERARCHY OF CORRELATION

MARCH – MULTI ASSET IS DIVERSIFICATION THAT EASY

JANUARY – SIGNS OF RISING STRESS IN THE HIGH YIELD MARKET’S LARGEST SECTOR, ENERGY

Diversification Dashboards 2019

JUNE – BROAD FIXED INCOME INDICES: ARE THEY A FAIR REPRESENTATION OF RISK AND RETURN

APRIL – ABOUT SHARPE RATIOS HIERARCHY, CROSS-ASSET ALLOCATION AND MAXIMUM DIVERSIFICATION

MARCH – ON THE “ASYNCHRONY TRAP” IN CORRELATION ESTIMATION

Diversification Dashboards 2018

DECEMBER – SUSTAINABILITY

NOVEMBER – MSCI SECTOR RECLASSIFICATION

OCTOBER – BENCHMARK PERFORMANCE ANALYSIS

JULY – MAXIMALLY RHO-PRESENTATIVE PORTFOLIOS

JUNE – ANTI-BENCHMARK GLOBAL HIGH YIELD 1 YEAR ANNIVERSARY

MAY – RISK CONCENTRATIONS IN US EQUITY MARKETS

MARCH – CHARACTERIZING PORTFOLIOS THROUGH THEIR CORRELATIONS

Diversification Dashboards 2017

December – Debunking some of the biggest investment myths

October – On Portfolio Representations

September – Measuring the impact of Norges Bank exclusion list

July – Credit markets: looking at concentrations through various prisms

February – A closer look at the 2016 financials rally

January – Credit default concentration

Diversification Dashboards 2016

November – On the decomposition of the diversification ratio

October – The commodity sector conundrum: a case for diversification in the US credit space

September – Portfolio capacity and beyond

July – Summer riddles

June – The evolution of stocks’ correlations after an IPO

May – The Benefits of diversification: case of japanese equities in Q1 2016

March – The benefits of diversification in emerging markets

February – 20 months in the life of the Anti-Benchmark US Credit

January – The year 2015 in review – a tale of risk and concentration

Diversification Dashboards 2015

December – The recent decline in diversification potential in equity markets and the build-up of market concentrations

November – The role of core asset managers in the global economy

October – A property of the Most Diversified Portfolio: the equality of two different risk contribution measures

September – Thinking Long Term

July -The Anti-Benchmark Emerging Markets Equity Strategy celebrates its 4th anniversary

June – The Anti-Benchmark US Credit celebrates its 1st anniversary

May – Drawdowns and other behavioural characteristics of the MDP: the US market case study

April – MSCI USA’s dynamic bets: From financials to IT?

March – What makes a beta smart?

February – As goes the oil, so goes the energy sector

January – Performance review

Diversification Dashboards 2014

November – Maximum Diversification® in US Credit October – Stability of Pairwise Correlations Hierarchy September – Comparative Analysis of Portfolio’s Sensitivities to a Rise in the Stock Market Volatility July – 3rd Anniversary of the Anti-Benchmark Emerging Markets Strategy June – How Sensitive are Smart Beta Portfolios to Interest Rates? May – Should high volatility stocks be considered as a risk factor? April – Is the MSCI World ripe for an Upward Diversification Correction? March – Does rebalancing a portfolio more frequently increase its returns? January – January briefs

Diversification Dashboards 2013

December – 2013 Performance Recap – Flagship strong outperformance November – Diversifying benefits of the Anti-Benchmark compared to the risk factor driven strategies October – Following the market introduction of a stock: case study on Facebook September – The link between correlations, volatility & performance in US equities August – Pacific Equities – Bets vs. Diversification June – 2nd Anniversary Update – Diversification in Emerging Markets May – Maximum Diversification vs. Minimum Volatility April – Canadian Equities, a diverse market? March – Japan: the opportunity of 2013? February – The benefits of maximum diversification in US equities: low volatility without a low-volatility bias

Diversification Dashboards 2012

December – Anti-Benchmark Emerging Markets in 2012: the best of both worlds November – UK Equities: how diversification can add value in a bull market October September – Canadian Equities: Diversification and performance August – Capturing the risk premium while reducing risk June – 1st anniversary update: Maximum Diversification in EM May – The AB is exposed to Apple without actually owning it March – Focus on AB Euro : Declining benchmark diversification February – Diversification runs deeper than sector allocation

Diversification Dashboards 2011

December – Focus on the AB US Equity in 2011 November – Diversification protects on the downside October – Diversification snapshot August – Time to diversify June – Maximizing diversification in EM equities May – Focus on US equities April – How diversification reduces volatility without betting on low-volatility stocks March – Is tracking error a measure of risk? February – Eliminating “passive” portfolio bets January – Diversification snapshot

Diversification Dashboards 2019

JUNE – BROAD FIXED INCOME INDICES: ARE THEY A FAIR REPRESENTATION OF RISK AND RETURN

APRIL – ABOUT SHARPE RATIOS HIERARCHY, CROSS-ASSET ALLOCATION AND MAXIMUM DIVERSIFICATION

MARCH – ON THE “ASYNCHRONY TRAP” IN CORRELATION ESTIMATION

Diversification Dashboards 2018

DECEMBER – SUSTAINABILITY

NOVEMBER – MSCI SECTOR RECLASSIFICATION

OCTOBER – BENCHMARK PERFORMANCE ANALYSIS

JULY – MAXIMALLY RHO-PRESENTATIVE PORTFOLIOS

JUNE – ANTI-BENCHMARK GLOBAL HIGH YIELD 1 YEAR ANNIVERSARY

MAY – RISK CONCENTRATIONS IN US EQUITY MARKETS

MARCH – CHARACTERIZING PORTFOLIOS THROUGH THEIR CORRELATIONS

Diversification Dashboards 2017

December – Debunking some of the biggest investment myths

October – On Portfolio Representations

September – Measuring the impact of Norges Bank exclusion list

July – Credit markets: looking at concentrations through various prisms

February – A closer look at the 2016 financials rally

January – Credit default concentration

Diversification Dashboards 2016

November – On the decomposition of the diversification ratio

October – The commodity sector conundrum: a case for diversification in the US credit space

September – Portfolio capacity and beyond

July – Summer riddles

June – The evolution of stocks’ correlations after an IPO

May – The Benefits of diversification: case of japanese equities in Q1 2016

March – The benefits of diversification in emerging markets

February – 20 months in the life of the Anti-Benchmark US Credit

January – The year 2015 in review – a tale of risk and concentration

Diversification Dashboards 2015

December – The recent decline in diversification potential in equity markets and the build-up of market concentrations

November – The role of core asset managers in the global economy

October – A property of the Most Diversified Portfolio: the equality of two different risk contribution measures

September – Thinking Long Term

July -The Anti-Benchmark Emerging Markets Equity Strategy celebrates its 4th anniversary

June – The Anti-Benchmark US Credit celebrates its 1st anniversary

May – Drawdowns and other behavioural characteristics of the MDP: the US market case study

April – MSCI USA’s dynamic bets: From financials to IT?

March – What makes a beta smart?

February – As goes the oil, so goes the energy sector

January – Performance review

Diversification Dashboards 2014

November – Maximum Diversification® in US Credit October – Stability of Pairwise Correlations Hierarchy September – Comparative Analysis of Portfolio’s Sensitivities to a Rise in the Stock Market Volatility July – 3rd Anniversary of the Anti-Benchmark Emerging Markets Strategy June – How Sensitive are Smart Beta Portfolios to Interest Rates? May – Should high volatility stocks be considered as a risk factor? April – Is the MSCI World ripe for an Upward Diversification Correction? March – Does rebalancing a portfolio more frequently increase its returns? January – January briefs

Diversification Dashboards 2013

December – 2013 Performance Recap – Flagship strong outperformance November – Diversifying benefits of the Anti-Benchmark compared to the risk factor driven strategies October – Following the market introduction of a stock: case study on Facebook September – The link between correlations, volatility & performance in US equities August – Pacific Equities – Bets vs. Diversification June – 2nd Anniversary Update – Diversification in Emerging Markets May – Maximum Diversification vs. Minimum Volatility April – Canadian Equities, a diverse market? March – Japan: the opportunity of 2013? February – The benefits of maximum diversification in US equities: low volatility without a low-volatility bias

Diversification Dashboards 2012

December – Anti-Benchmark Emerging Markets in 2012: the best of both worlds November – UK Equities: how diversification can add value in a bull market October September – Canadian Equities: Diversification and performance August – Capturing the risk premium while reducing risk June – 1st anniversary update: Maximum Diversification in EM May – The AB is exposed to Apple without actually owning it March – Focus on AB Euro : Declining benchmark diversification February – Diversification runs deeper than sector allocation

Diversification Dashboards 2011

December – Focus on the AB US Equity in 2011 November – Diversification protects on the downside October – Diversification snapshot August – Time to diversify June – Maximizing diversification in EM equities May – Focus on US equities April – How diversification reduces volatility without betting on low-volatility stocks March – Is tracking error a measure of risk? February – Eliminating “passive” portfolio bets January – Diversification snapshot

Diversification Dashboards 2019

JUNE – BROAD FIXED INCOME INDICES: ARE THEY A FAIR REPRESENTATION OF RISK AND RETURN

APRIL – ABOUT SHARPE RATIOS HIERARCHY, CROSS-ASSET ALLOCATION AND MAXIMUM DIVERSIFICATION

MARCH – ON THE “ASYNCHRONY TRAP” IN CORRELATION ESTIMATION

Diversification Dashboards 2018

DECEMBER – SUSTAINABILITY

NOVEMBER – MSCI SECTOR RECLASSIFICATION

OCTOBER – BENCHMARK PERFORMANCE ANALYSIS

JULY – MAXIMALLY RHO-PRESENTATIVE PORTFOLIOS

JUNE – ANTI-BENCHMARK GLOBAL HIGH YIELD 1 YEAR ANNIVERSARY

MAY – RISK CONCENTRATIONS IN US EQUITY MARKETS

MARCH – CHARACTERIZING PORTFOLIOS THROUGH THEIR CORRELATIONS

Diversification Dashboards 2017

December – Debunking some of the biggest investment myths

October – On Portfolio Representations

September – Measuring the impact of Norges Bank exclusion list

July – Credit markets: looking at concentrations through various prisms

February – A closer look at the 2016 financials rally

January – Credit default concentration

Diversification Dashboards 2016

November – On the decomposition of the diversification ratio

October – The commodity sector conundrum: a case for diversification in the US credit space

September – Portfolio capacity and beyond

July – Summer riddles

June – The evolution of stocks’ correlations after an IPO

May – The Benefits of diversification: case of japanese equities in Q1 2016

March – The benefits of diversification in emerging markets

February – 20 months in the life of the Anti-Benchmark US Credit

January – The year 2015 in review – a tale of risk and concentration

Diversification Dashboards 2015

December – The recent decline in diversification potential in equity markets and the build-up of market concentrations

November – The role of core asset managers in the global economy

October – A property of the Most Diversified Portfolio: the equality of two different risk contribution measures

September – Thinking Long Term

July -The Anti-Benchmark Emerging Markets Equity Strategy celebrates its 4th anniversary

June – The Anti-Benchmark US Credit celebrates its 1st anniversary

May – Drawdowns and other behavioural characteristics of the MDP: the US market case study

April – MSCI USA’s dynamic bets: From financials to IT?

March – What makes a beta smart?

February – As goes the oil, so goes the energy sector

January – Performance review

Diversification Dashboards 2014

November – Maximum Diversification® in US Credit October – Stability of Pairwise Correlations Hierarchy September – Comparative Analysis of Portfolio’s Sensitivities to a Rise in the Stock Market Volatility July – 3rd Anniversary of the Anti-Benchmark Emerging Markets Strategy June – How Sensitive are Smart Beta Portfolios to Interest Rates? May – Should high volatility stocks be considered as a risk factor? April – Is the MSCI World ripe for an Upward Diversification Correction? March – Does rebalancing a portfolio more frequently increase its returns? January – January briefs

Diversification Dashboards 2013

December – 2013 Performance Recap – Flagship strong outperformance November – Diversifying benefits of the Anti-Benchmark compared to the risk factor driven strategies October – Following the market introduction of a stock: case study on Facebook September – The link between correlations, volatility & performance in US equities August – Pacific Equities – Bets vs. Diversification June – 2nd Anniversary Update – Diversification in Emerging Markets May – Maximum Diversification vs. Minimum Volatility April – Canadian Equities, a diverse market? March – Japan: the opportunity of 2013? February – The benefits of maximum diversification in US equities: low volatility without a low-volatility bias

Diversification Dashboards 2012

December – Anti-Benchmark Emerging Markets in 2012: the best of both worlds November – UK Equities: how diversification can add value in a bull market October September – Canadian Equities: Diversification and performance August – Capturing the risk premium while reducing risk June – 1st anniversary update: Maximum Diversification in EM May – The AB is exposed to Apple without actually owning it March – Focus on AB Euro : Declining benchmark diversification February – Diversification runs deeper than sector allocation

Diversification Dashboards 2011

December – Focus on the AB US Equity in 2011 November – Diversification protects on the downside October – Diversification snapshot August – Time to diversify June – Maximizing diversification in EM equities May – Focus on US equities April – How diversification reduces volatility without betting on low-volatility stocks March – Is tracking error a measure of risk? February – Eliminating “passive” portfolio bets January – Diversification snapshot

Journal Articles

We are very ambitious in the way we think of delivering solutions to clients, and strive to fully deliver TOBAM’s resources and knowledge. We believe in transparency and in the value created by sharing the research that underpins our investment processes with our clients.

“Toward Maximum Diversification” – Journal of Portfolio Management, Fall 2008 “Properties of the most diversified portfolio” – Journal of Investment Strategies, Spring 2013

© 2015 tobam

-Legal information-CONTACT
  • About us
  • Investment Philosophy
  • Sustainable Way
  • Products Offering
  • Private access