Arnim Holzer Wants His Investors to Sleep Soundly as He Manages Their Portfolio

December 16, 2019

Arnim S. Holzer is Global Macro Strategist, Client Portfolio Manager and Founder of the EAB Correlation Defense Index at EAB Investment Group.

With over 30 years of global macro and multi-asset experience, Mr. Holzer’s investment philosophy is a unique blend of fundamental, technical and quantitative disciplines honed over the years of working with many of the top firms and investors in each of these disciplines.

His particular macro skill is understanding the relationships of correlation and volatility in the optimization of portfolio construction and return generation. Mr. Holzer received an undergraduate economics degree from Princeton University and his MBA in finance from Fordham University.

In this 4,093 word interview, exclusively in the Wall Street Transcript, Mr. Holzer reveals the portfolio management insights he has gained in over 30 years of investing.

“While equities have an upward skew over time, there is a tendency for equity markets to have unanticipated sharp declines on a sporadic basis. As a result, there can be a tendency for equity investors to over-invest close to the end of a bull market and then get severely penalized for drawdowns.

What we have found over time is that there’s a fair amount of inefficiency in the options markets around some of these assumptions that skew, and volatility doesn’t always correctly price in those realities.

Investors that take a disciplined systematic approach to managing their signatures, their returns signature, can actually over time generate better Sharpe ratios than the underlying equity market itself.”

This portfolio management technique has proven itself over time:

“The second point is that we try to make the investor’s ability to stay with their asset allocation stronger. We come out of a school of thought that investors behave emotionally.

The professionals here are all 25- and 30-year market professionals, and we lived through 1987, we lived through the 2008 market crash, the Lehman crisis, the Great Recession.

What we looked at is what really happened to investors during those periods of time. When you look at passive investment strategies, they always test well because they assume that investors hold, that they buy low and sell high.

But what we know behaviorally is, in fact, and if you look at the Dalbar studies — there’s some controversy around those, but even adjusted studies show that investors have a tendency, when the markets get into that 5% drop territory, investors have a tendency to start selling.

So they sell low, and they buy high. That is a problem with passive investing that the studies never take into account.

Our structure, on the contrary, basically has sold the market in that 2% to 7% area. So we’re collecting profits. We’re collecting offset when the market goes down between 2% and 7%, and we over-defend to 150% of the fund’s exposure. So 1.5 times our notional is what we’re defending in that range.”

Get the complete picture of this return winning portfolio management system by reading the entire 4,093 word interview, exclusively in the Wall Street Transcript.