Cardiff Park's investment strategy is based on theories rooted in award winning academic research: namely, Modern Portfolio Theory and Passive investing.

Modern Portfolio Theory is derived from rigorous and ongoing research by leading academic financial economists. The key insight is that the risk of an individual asset is of little importance to the investor. What matters to the investor is the asset’s contribution to the portfolio's risk as a whole. In other words, adding the risk of one asset to the risk of another reduces overall risk.

Passive asset class investing is rooted in research by two of academia's leading financial economic researchers, Eugene Fama (University of Chicago) and Kenneth French (Dartmouth College). The key insight of passive investing is that the stock market is "efficient" and that no active investor has the ability to consistently beat the market through smart timing or shrewd stock picking.

Passive investing is the art of investing in multiple asset classes, or groups of securities with similar risk and return characteristics, to maximize return and minimize risk. Examples of asset classes include large and small-cap stocks, value and growth stocks, international stocks, short or intermediate-term bonds, real estate and commodities. Passive managers diversify broadly within and across asset classes according to investor risk preferences. Passive managers seek returns for their client’s as much as active managers do but instead of chasing performance, in an environment dominated by managers lacking the skills to rise above the forces of market efficiency, passive managers generate better returns by employing a broadly diversified set of low-cost, tax-efficient asset class mimicking strategies.

Central to passive management is the acknowledgement that historically active management has not been able to outperform the returns generated by asset classes. Even though, a tiny handful of superstar money managers with outstanding past performance are constantly promoted by the media as evidence for the benefits of active management. In reality, no one knows in advance which managers will outperform, the odds of selecting one are low, and the results achieved may be due to luck.  In the final analysis, countless studies demonstrate that active managers typically under perform passively managed alternatives by a substantial margin due to poorly timed investments, poor investment choices, excessive trading and exorbitant fees. The benefits of active management accrue to fund management companies, not to investors. Whereas passive management delivers the performance you want and Cardiff Park has the experience you can trust.

Our optimal client understands the principles of passive and index investing and is committed to following them for the long term. We can recommend several popular books on the subject, and additional information can be obtained from the Dimensional Fund Advisors website.

The Fama-French research provides a disciplined framework for analyzing manager styles and successes, for profiling portfolios, and for calculating expected returns based on exposure to size and value factors.

Fama and French carefully analyzed the source of stock returns over the long term. They found that additional returns are likely if value and small-cap stocks are over-weighted relative to the total equity market, and if real estate securities (REITs) and international stocks are included. Further, Fama and French found that differences in fixed income returns are largely explained by maturity and credit quality and that a better risk/return ratio is achieved when short-term bonds are allocated.

The combination of a broadly diversified, passive driven investment approach and Cardiff Park's historical perspective on the value of the stock market defines the strategy that allows Cardiff Park to provide clients with prudent, long-term, goal-driven investment portfolios.