Portfolio Performance


Several Factors Contribute to the Performance Optimisation of Your Portfolio.

At the core of our investment process is a pioneering technology for dynamic risk management, aimed at generating better risk-adjusted returns. Our focus on cost-efficiency, and working with realistic assumptions about the behaviour of capital markets, help us to improve your portfolio performance.



We make sure that we do everything in the most cost-efficient way possible, so that your returns are not affected by high fees. For this reason we invest solely in the best ETFs.


Risk Management

We dynamically adjust the weights of the individual asset classes in your portfolio, to keep your risk stable over time and to deliver better risk-adjusted returns.

diversification-spread (1)

Risk Assessment
and Diversification

Our evidence-based investment model uses empirical data, rather than the theoretical and simplified assumptions of traditional investment models, which don’t accurately reflect the behaviour of capital markets.

Effective Risk Management Improves Performance, Because More Risk Does Not Always Lead to Better Returns.

“He who doesn’t risk never gets to drink champagne” – this proverb is particularly true for investing in the capital markets. Investors cannot expect high returns unless they are willing to also accept a high level of risk. Asset classes with higher average long-term risk typically generate better returns than asset classes with a lower-risk profile (e.g., equities vs bonds). However, it would be wrong to conclude that more risk automatically leads to better returns, as the relationship between risk and return is more complex than that.

Risk can effectively be broken down into two components: the “fundamental” risk which is characteristic for a particular asset class and changes very little over time, and the short-term excess risk, i.e. temporary risk fluctuations above or below the fundamental risk. These periods of excess risk are driven by the different levels of uncertainty about the future performance of an asset class.

Asset classes with high fundamental risk usually generate better returns over longer investment horizons. So there is indeed a positive relationship between the level of fundamental risk and return. However, periods with positive excess risk frequently go hand in hand with lower, or even negative, performance. Investors are therefore in the long run rewarded for accepting a higher fundamental risk by investing into generally more risky asset classes, but they are punished for taking on positive excess risk.

Scalable Capital’s goal is to keep each portfolio within the risk category specified by the client by using a combination of different ETFs representing different asset classes. If our risk projections show a breach of the risk category due to a period of excess risk, the portfolio weights are adjusted automatically. This “smoothing out” of periods of excess risk aims to achieve better risk-adjusted returns.

Risks Are Rewarded with Risk Premiums in the Long Run

Annualised returns of various asset classes
(in %, 1980-2015)
VolaReturns UK no-title black background-1
Source: Bloomberg, own calculations

Excess Risk Is Usually Punished with Negative Returns

Development of the S&P 500 and the VIX
(risk/volatility indicator of the S&P 500)
Positive Excess Risks Are Punished-2
Source: Bloomberg, own calculations

Scientific Studies Identify a “Low-Risk-Premium” – a Premium for Investments in Periods of Lower Uncertainty.

Scientific studies suggest that a risk-based investment approach delivers better risk-adjusted returns than stock-picking and trying to predict returns. See for example Haas and Mittnik (2009), Mittnik and Paella (2003) as well as Moreira and Muir (2016).

“If returns are not predictable by volatility, then one should vary one’s investment according to volatility since this will allow the investor to reduce risk without forgoing returns” Yale scientists Moreira and Muir summarise in a recent study. They identify a “low-risk premium” that rewards investments in periods of normal and low market risk.

Within a time frame of 90 years (1926-2015), the researchers compared the performance of stock portfolios pursuing two different investment strategies. One strategy adopted a conventional “Buy & Hold” approach, the other followed a risk control mechanism that decreased exposure during high-volatility periods and increased it during low-risk periods.

The result: “In volatile markets, there’s a lot of additional risk that investors are exposed to, and if they’re not being adequately compensated for that risk, then the right thing to do, actually, is to exit”, concludes Tyler Muir, Professor of Finance at the Yale School of Management.

Yale Study (2016): Risk-based Strategies Are More Successful.

Performance Comparison Buy & Hold vs. Risk-based Approach (Logarithmic Scale).
yale chart page-1
Source: Moreira, A., and Muir, T. (2016), Volatility Managed Portfolios. Working paper, February 2016, Yale School of Management.
Warning: Neither past performance nor performance projections are indicative for actual future performance. Please note our Risk Warning.
Haas, M. und Mittnik, S. (2009), Portfolio selection with common correlation mixture models, in: Bol, G., Rachev, S.T. and Würth, R. (publishers), Risk Assessment: Decisions in Banking in Finance, Springer-Verlag.
Kuester, K., Mittnik, S. and Paolella, M. (2006), Value-at-Risk Prediction: A Comparison of Alternative Strategies, Journal of Financial Econometrics, 4, 53–89.
Mittnik, S., and Paolella, M. (2003), Prediction of Financial Downside-Risk with Heavy-Tailed Conditional Distributions, in: Rachev, S.T. (ed.) Handbook of Heavy Tailed Distributions in Finance, Elesvier/North-Holland, 2003.

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