Axioma Portfolio: An Overview
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What is Axioma Portfolio?
Axioma Portfolio (formerly known as PortfolioPrecision™) is a suite of analytical tools that performs portfolio risk and exposure analysis and portfolio rebalancing. Axioma Portfolio is compatible with both Axioma's Performance Attribution and Axioma's Backtesting Platforms.
Axioma Portfolio relies on Axioma's innovative methodologies that unite cutting-edge science with human intuition. The result is a powerful and easy to use suite of tools that is transforming 21st century portfolio management.
Axioma Portfolio is a revolutionary solution for those managing active and passive portfolios. Axioma Portfolio is based on Robust Mean Variance Optimization, a technique developed by Axioma's Research Team to explicitly and accurately deal with the intrinsic uncertainty present in all financial models. As a result, Axioma Portfolio produces more stable portfolios that are less sensitive to market fluctuations and thus keep transaction costs down. [Click here for background on the mean-variance framework by Dr. Harry M. Markowitz.]
Axioma Portfolio is built with state-of-the-art optimization technology and performs best where other solutions fail: managing seemingly simple requirements that result in complex underlying problems.
Axioma Portfolio also recognizes the need for portfolio managers to view and allocate risk and expected returns along their own dimensions. A simple yet powerful engine maps client views to third-party risk estimates. The result is a system that speaks the language of the individuals who use it.
Axioma Portfolio incorporates both the Axioma Alpha Factor as well as the flexibility to incorporate more than one risk model. Used in conjunction with Axioma Robust Risk Models, we believe Axioma Portfolio is by far the most powerful, flexible and intuitive portfolio rebalancing tool on the market today.
Who uses Axioma Portfolio?
Researchers and portfolio managers at traditional buy-side firms and proprietary traders at sell-side firms use Axioma Portfolio to identify, develop and manage successful investment strategies.
Hedge fund managers use Axioma Portfolio to construct and rebalance long-short funds on a real-time, daily, weekly or monthly basis.
Traders use our tools to build optimal hedges, structure trades and design synthetic products.
Private wealth management groups benefit from the application's scalability to rebalance tax-sensitive separate accounts, viewed as separate portfolios or aggregated across the individual, against model portfolios or industry benchmarks.
Plan Sponsors and Consultants use Axioma Portfolio for optimal asset allocation, manager selection and multiple methodology manager performance review.
What makes Axioma Portfolio unique?
Three things. First, Axioma Portfolio is the only tool of its kind specifically designed to support a wide range of investment-management approaches, from highly quantitative to strongly fundamental, from equity to fixed-income to balanced accounts.
Second, Axioma Portfolio is very flexible. There are three options: an easy-to-use graphical user interface (GUI), a simple-to-integrate XML utility, and an application programmer's interface (API) that meets the needs of the most demanding advanced users and technical teams.
Third, Axioma Portfolio is powered by Axioma's unique and revolutionary optimization technologies. The unique design of the risk engines and search algorithms provides robust, accurate, and intuitive solutions that cater to a specific client need in a very short period of time.
What is the benefit of Axioma Portfolio's robust optimization?
Uncertainty is a fact of life. That makes predicting the future an arduous task. Expected return estimates and many other parameters used when deciding on the best portfolio contain errors. Should we just accept that and move on? No. More can be done. Axioma Portfolio's robust optimization technology explicitly accounts for possible estimation errors in the parameters. This results in portfolios that are more stable and more likely to perform well over a wide range of future market outcomes. As a side benefit, the use of robust optimization typically reduces turnover, which also contributes to a better bottom line.
What sets Axioma's optimization engines apart from other solutions on the market?
Axioma Portfolio relies on a proprietary optimization technology that is the most advanced of the three broad classes of solvers available today.
Axioma Portfolio allows users to input the problem in its natural form. Axioma Portfolio deploys mathematical optimization algorithms that have been developed over many years to specifically exploit the structure of portfolio construction problems. Axioma Portfolio is, as far as we know, the only software package built around such an algorithm.
In contrast, Generic Optimization Solvers are packages that "speak" mathematics, not "portfolio optimization." Used to solve optimization problems arising in a variety of industries, such as supply-chain management and telecommunications, they are not designed to exploit the unique characteristics of optimization problems as they pertain to managing financial portfolios. Further, because the products are generic, they require a programmer to properly convert portfolio language and problem structure to a tractable and transparent mathematical language. Inappropriate conversion results in significant degradation of the solution, getting stuck in local optima/minima, and problems that take too long to result in a high-quality solution. Incorrect conversion is even worse.
Generic Optimization Solvers plus a Portfolio-Optimization-Specific Modeling Layer allow users to input the problem in its natural form by including assets, risk models, factors, and conditions, while the transformation to the mathematical problem occurs internally. These packages bridge the problem conversion issue that hinders the use of generic optimization solvers. However, the underlying optimization engine is still not specifically tuned to address and exploit the structure of the problem. The result is overconfidence in sub-optimal solutions.
[The underlying mathematical model of the basic portfolio construction problem is a mixed-integer quadratic optimization problem, i.e., a mathematical program with a quadratic objective function and constraints that are either linear, non-linear or integer. This problem can generally be solved efficiently by most optimization solvers. However, many of the important, but hard to model business rules are not present in the basic portfolio construction problem.
Realistic portfolio optimization models include additional considerations such as allocation of risk targets (global or per sector/country/currency), hedging risk model error by simultaneously incorporating multiple risk models, non-linear market impact, both total risk and active risk limits, uncertainty in the underlying data, and combinatorial issues such as number of holdings and/or trades limits (global or per sector/country/currency), to name a few. These enhancements to the basic model change the underlying structure significantly and bring control to the portfolio manager's fingertips. A much more sophisticated approach is needed to find a good solution to these more complex problems. This is precisely where Axioma Portfolio's performance sets it apart.]
