Passive Equity

We employ a two-step process to select securities for our passively managed portfolios.

Stratified Sampling Strategy - First, we employ a stratified sampling strategy to hold a representative sample of securities. We choose stocks by industry and market capitalization. By not selecting illiquid stocks, we improve the quality and practicality of the basket of stocks.

Multi-factor Risk Model and Portfolio Optimization - We use a multi-factor risk model and a portfolio optimization to determine weights in the portfolios. For our international index portfolio, we set the country weights of the portfolio equal to the country weights of the index. We limit sector weights to +/- one percent of the sector weights of the respective country index. We then optimize the portfolio to minimize the variance of the returns. We strive to minimize turnover, reduce tracking error, and minimize transaction costs by avoiding the more illiquid securities.