Portfolio Diversification
To avoid excessive exposure in any one company, industry, market sector, or international region, we invest only in well-diversified no-load mutual funds and Exchange Traded Funds (ETFs).

• No individual stocks, bonds, or options
• No sector focused funds (e.g., specialty technology fund or precious metals fund)
• No country or region specific international funds (e.g., Japan fund or Europe fund)

Focus on Managing Risk
Rather than trying to maximize absolute returns - and potentially exposing our clients to excessive risk - we optimize our portfolios based on their risk-adjusted returns. Specifically, we seek to maximize the Sharpe Ratio of our portfolios. This widely used measure of risk-adjusted return is calculated by dividing a portfolio's excess return by its corresponding volatility/risk.

At the core of the quantitative techniques we use in this strategy are two main concepts:

• Modern Portfolio Theory - the idea that it is possible to increase a portfolio's return without increasing its risk. Conventional wisdom states that it is not possible to achieve higher returns without taking on additional risk. Yet by paying attention to how the returns of a security correlate to those of the rest of the portfolio, one can add a higher growth, higher risk security to a portfolio without increasing, and perhaps even decreasing, the portfolio's overall risk.
• Mean Variance Optimization - the technique used in constructing "optimal" investment portfolios. By performing the above process of adding securities to or deleting securities from an investment portfolio based on their correlation to the rest of the portfolio, it is possible to construct what Markowitz called "optimal" portfolios - those that have the highest projected return for a given level of risk.

Dynamic Portfolio Allocation
In recent years, many investment advisers and publications have advocated "passive" investing, i.e., buying and holding an index mutual fund or a fixed portfolio of stocks, bonds, or mutual funds. Yet with the S&P 500 declining 45% from August 2000 to September 2002, this strategy has lost much of its appeal. The problem is that a passive portfolio simply cannot respond to changes in the relative performance or overall risk of different market segments (e.g., domestic vs. international, growth vs. value, large cap vs. small cap).

At Radius, we dynamically allocate the funds in our portfolios to the mutual fund categories (large cap vs. small, growth vs. value, international vs. domestic) that we project will generate the highest risk-adjusted returns. By actively managing our investment portfolios, we are able to respond more rapidly to - and take advantage of - changing market conditions