Risk Management

Heard Capital does not actively seek to benefit from exposure to risk premia. Rather, we actively seek to be agnostic and to build a robust portfolio that can generate excess returns while minimizing a drawdown, regardless of which factors are dominant in the broader market environment. We construct the portfolio to help avoid overconcentration in any single risk factor.

We approach risk management from both the individual security level and the aggregate portfolio level. At the security level, the primary focus is on the underlying business, which we analyze by conducting fundamental analysis with an emphasis on value. We also carefully consider the incremental factor risks, such as value, profitability, volatility, momentum, default risk, commodity, etc., embedded in the security.

With the proliferation of “smart beta” and factor strategies, we believe it is imperative to monitor our portfolio’s exposure to various factors and be cognizant of both intended and unintended risk exposures. This dual approach incorporates both fundamental and quantitative analysis allowing us to better understand the underlying drivers of volatility to make more informed investment decisions over the long term.