Dynamic Risk Management

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The Best Thing Science and Technology Has to Offer Your Portfolio.

We use cutting-edge technology and the latest research on capital markets and financial econometrics in order to improve your portfolio.
Unlike active managers, Scalable Capital makes no portfolio adjustments based on subjective opinions. Adjustments to your portfolio are instead caused by a deviation of the loss level your portfolio faces from your selected individual risk category.

Our risk management technology enables:

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A better understanding of the actual risk in your portfolio.

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Better control over your downside risk, which at the same time improves risk-adjusted returns.

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More peace of mind by limiting unexpected portfolio fluctuations, helping you to stay invested.

Step 1: You Decide How Much Risk You Want to Take.

Risk is the currency to buy long-term investment return. Or in other words: returns are the reward for taking (some, or a lot of) risk. Contrary to most other providers, our clients can decide exactly how much risk they want to ‘put on the table’. Whether low risk, with correspondingly low return opportunities, or a higher risk with higher return potential.

The chart below illustrates the relationship between risk and reward as you move up our risk scale from 3%-25% downside risk.

Long-term return potential increases with higher downside risk

The annual downside risk measures what loss is not to be exceeded with a probability of 95% over the course of a year. For instance, a portfolio in a 10% risk category will not lose more than 10% in a given year with a 95% certainty. This is known as „Value-at-Risk“ (VaR), a risk measure commonly used in the financial industry.

To learn more about how much additional return you can expect for one additional percentage point of risk, take a look at our investment planner.

Potential growth of an investment of £100,000

Risk Category: 5% VaR

Specifies the risk in the portfolio using Value-at-Risk (VaR)

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Risk Category: 20% VaR

Specifies the risk in the portfolio using Value-at-Risk (VaR)

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Calculation Methodology

Based on historical risk and return data of the underlying assets, and using statistical methods, we calculated possible outcomes for a period of up to 30 years. The 5%-quantile in this chart shows a bad outcome. The 50%-quantile shows the median outcome. The 95%-quantile shows a good outcome. The outcomes shown here take into account our fee of 0.75% per annum as well as the average total expense ratios of the underlying ETFs of 0.25% per annum. With investment comes risk: Projections are never a perfect predictor of future performance. They are used to guide you in your decision-making process but cannot be guaranteed. Source: Scalable Capital

Step 2: We Regularly Monitor Your Portfolio.

Your portfolio's risk is regularly and systematically monitored to make sure your portfolio delivers the performance you deserve without breaching your individual risk category. What sets us apart from others is the way in which we measure risk. We use a quantitative simulation framework, which takes the current market situation and the observed behaviour of the different asset classes into account, using large amounts of data to generate thousands of plausible performance scenarios.

If more than 5% of the plausible paths end in a loss greater than your selected downside risk, we change your allocation towards more conservative assets. And vice versa if your portfolio is too conservative and therefore threatens not to deliver the return you are looking for. This doesn't mean that we trade hectically in response to every short-term market correction. Instead, we adjust your portfolio when there is a sustained change in market conditions. That's how we keep risk under control in the long-term.

Monte-Carlo Simulations to Monitor Portfolio Risk

If you're interested in finding out more, we recommend you to read about Monte Carlo simulations in our glossary. To find out why it is possible to predict risk, but not returns, take a look at our section on evidence-based investing.

Risk is Your Currency for Performance.

Dynamic Risk Management Through Continuous Adjustments to the Portfolio.

The Management of Risk Rather Than Return.

Our goal is to find the optimal return for a given amount of risk.

The portfolio composition essentially depends on the investor's risk profile. We use pioneering technology to meet these requirements in all market conditions.

Once the risk projection indicates an imminent increase of the risk of loss, exceeding your risk tolerance, an adjustment is made automatically – for example, a reduction in equity ETFs and an increase in bond ETFs. In the opposite case, i.e the risk is below the set target, there will be a risk increasing reallocation, so as to prevent a scenario where a portfolio is too conservative and achieved returns are below expectations.

Investing with Scalable Capital means your risk is controlled dynamically and not simply left to fluctuate with the market.

Important Information
These figures are illustrative only. The forward looking statements and diagrams are not a reliable indicator of future performance.

Can losses occur which are larger than the specified risk category?

Yes. A loss or temporary, negative performance of your portfolio, which goes beyond the chosen VaR value, can occur with a probability of 5%. For example, with a VaR of 12% it is expected that with a probability of 5% (i.e once every 20 years) a loss of greater than 12% will occur on an annualised basis.

Professional Investment Management

Lower costs, better risk management, zero hassle.

Step 3: We Adjust Your Portfolio When Required.

The result of our dynamic asset allocation can be seen in the following charts. They illustrate how our systematic model would have historically adjusted the weights of each ETF (Exchange-Traded Fund) in portfolios with different risk categories.

In times of increased financial market risk, the proportion of equity ETFs is reduced (dark areas in the graphic) in favour of government bond ETFs (light areas in the graphic). In a traditional portfolio, the weights of each ETF would have remained constant over time, regardless of what underlying risk this would actually hold.

Cash
Government Bonds

Corporate Bonds
Real Estate

Commodities
Equities

The value of your portfolio can go down as well as up and you may get back less than you invest. Learn more about risks here

Our Risk Categories Explained.

Our Co-Founders Adam French, Dr. Ella Rabener and Simon Miller explain how Scalable Capital’s risk management works and how decisions are made on when to change the allocations of a portfolio.

Learn more about how Scalable Capital combines decades of scientific research with the latest technological innovations to optimise your portfolio.

Read more about the foundation of our investment model in our White Paper.