unbiased (un· bi· ased).

adjective: showing no prejudice for or against something; impartial

Similar: non-partisan, objective, outside

This picture is taken from Yves Choueifaty’s office. The Art piece from renowned street artiste Jérôme Mesnager was specially comissioned for TOBAM and draws on the now renowed white silhouette “L’homme en blanc” with the Diversification Ratio mathematical definition in the background.

At the heart of TOBAM is the idea that, in a way, there are only two ways to build a portfolio on this planet:

  • the first way refers to the ability to determine what is cheap(er than tomorrow’s price) and what is (more) expensive. In other words, one is saying markets are forecastable and thus builds a portfolio that is biased towards what is cheap(er than tomorrow’s price).
  • our way, based on the idea that we don’t have the ability to forecast, putting ourselves in the context of an efficient (unforecastable) market, and therefore building an unbiased portfolio. Such a portfolio would aim to be as evenly as possible exposed (correlated) to… everything.

We want to build a portfolio without view, without bets, the portfolio that is unbiased, literally undiversifiable.

We trace this principle back to the fundamentals of Harry Markowitz’s Nobel prize winning portfolio theory and to the portfolio that we believe comes closest to what is described as being the source of the equity risk premium, in Professor Markowitz’ work as the undiversifiable portfolio.

He used to say “Diversification is the only free lunch”.

In 2005, TOBAM was one of the two first inventors of smart beta, exploiting the full breadth of independant risk drivers available in any given investment universe and neglected by conventional beta.

This before the “smart beta” expression was even introduced and subsequently somewhat abused by the industry.

Smart beta at its origins goes back to the idea of delivering a better or smarter market premium, since market cap-weighted indices are arguably very biased dynamic risk allocators and hence not representative of the true market diversity.

TOBAM’s founder Yves Choueifaty gave an interview in 2015, where he made this point very clear saying: “what defines truly a smart beta approach should be its capacity to deliver an equilibrium portfolio”.

An equilibrium portfolio being a portfolio that is non circular-referring, nor diverging if used to generate implied returns.