The Fundamentum Tactical strategies are built on the foundation that global financial markets are not likely to be strongly efficient, meaning that they do not instantly reflect all information. This may allow portfolio managers with flexible mandates to capitalize on market disequilibria. A market for a particular financial asset may not be in equilibrium during a particular time frame for many reasons such as (not limited to):
- Different levels of information known: for example, an investment manager may know much more than a seller of an assets by analyzing a mosaic of information;
- Varying levels of time horizons by investors: for example, endowments have much different time horizons than individuals;
- Political uncertainties: often times, some institutional investors must avoid areas of political uncertainty giving rise to mis-priced assets as an example; and
- Demographics: bonds tend to be more in demand by older populations for example
Over time, Fundamentum Tactical strategies are constructed in the belief that markets correctly discount disequilibria and mean revert to a state of equilibrium over time. The Fundamentum tactical process is built on the basic tenets of Black-Litterman model, which is an equilibrium model that begins by defining the global financial market as a whole. The defined global financial market serves as a neutral reference point for Fundamentum Tactical strategies, which is a well-diversified, market capitalization weighted benchmark. For specific financial markets in the global market portfolio that the Fundamentum Investment Committee has an informed opinion and believes may be in a state of disequilibrium, the team expresses different – than– equilibrium views that results in tilting portfolio weights above or below the neutral benchmark weights. It is through this process of attempting to identify mid-priced asset classes that Fundamentum attempts to add value.