[{"data":1,"prerenderedAt":500},["ShallowReactive",2],{"pr-\u002Fpublications\u002Farticles\u002Fen\u002Fprocess-evolution":3},{"id":4,"title":5,"body":6,"description":490,"extension":491,"meta":492,"navigation":495,"path":496,"seo":497,"stem":498,"__hash__":499},"content\u002Fpublications\u002Farticles\u002Fen\u002Fprocess-evolution.md","Process Evolution - October 2026",{"type":7,"value":8,"toc":481},"minimark",[9,24,27,61,77,80,113,115,245,247,365,367],[10,11,15,20],"page-section",{"className":12},[13,14],"pb-md","text-lg",[16,17,19],"h1",{"id":18},"improving-portfolio-diversification","Improving Portfolio Diversification",[21,22,23],"p",{},"The October 2026 release is the next step in the normal evolution of Evovest’s process, and its guiding principle was improved portfolio diversification. This update is expected to raise the stock-specific share of active risk, giving Evovest greater confidence in its ability to create value independently of any flavor of the month in factor investing.",[25,26],"curve-shadow",{},[28,29,30,48],"page-section-row",{},[31,32,34,39,42,45],"section-cell",{"className":33},[14],[35,36,38],"h3",{"id":37},"summary","Summary",[21,40,41],{},"Until now, Evovest has controlled its risk-factor exposures only through hard constraints. The new approach retains hard constraints and adds a progressive penalty to more selectively accept potential factor exposures in exchange for expected alpha.",[21,43,44],{},"October’s release directly addresses feedback from current and prospective clients who, for similar risk and return, prefer a higher share of stock-specific risk and minimal exposure to certain factors (e.g., momentum). This write-up discusses the evolution of Evovest’s process to actively manage the trade-off between factor exposure and expected alpha.",[21,46,47],{},"This document refers to modeled active risk; some methods may give slightly different interpretation.",[31,49,51,55,58],{"className":50},[14],[35,52,54],{"id":53},"conclusion-and-results-to-follow","Conclusion and results to follow",[21,56,57],{},"Evovest looks forward to tracking results over the next several quarters as it validates the simulated results from October’s improvements to portfolio diversification. On a modeled basis over a 10-year period (2016–2025), the update raised the share of stock-specific active risk in the Evovest Global Market-Neutral Strategy from 71.7% to 91.1%.",[21,59,60],{},"The write-up also details the gains in diversification, lower volatility, a higher information ratio, and other modeled results (see Tables).",[10,62,64,71],{"className":63},[13],[21,65,66],{},[67,68],"img",{"alt":69,"src":70},"Figure 1","\u002Fassets\u002Farticles\u002Fprocess-evolution\u002Ffigure_1.svg",[21,72,73],{},[74,75,76],"em",{},"Figure 1: Increasing portfolio diversification directly raises the stock-specific share of risk",[78,79],"hr",{},[10,81,83,87,90,93,96,102,107,110],{"className":82},[13,14],[35,84,86],{"id":85},"the-how-and-why-of-evolving-our-process-to-improve-portfolio-diversification","The how and why of evolving our process to improve portfolio diversification",[21,88,89],{},"We have always controlled risk-factor exposures, but until now, only through hard constraints: within the allowed range, positioning carried no penalty; beyond it, it was simply not permitted. Over the years, current and prospective clients have told us that, for similar risk and return, they would prefer a higher share of stock-specific risk. That share, however, depends on the risk model used to measure it, and it can be raised mechanically, for example, by matching average factor exposures, without making a portfolio any more diversified.",[21,91,92],{},"Rather than targeting that share directly, we focused on the risk controls that drive our decisions: predicted risk, our diversification metric, and how closely the portfolio matches its target risk-factor distribution (measured by the Wasserstein distance). Our objective was to improve these measures while keeping returns similar and risk similar or slightly lower. The higher measured share of stock-specific risk is a direct consequence of these improvements.",[21,94,95],{},"The mechanism used to achieve this was integrated into our existing process without significant disturbance of the portfolio construction pillars we’ve built over the years. Consistent with Evovest’s long-standing practice of matching the distribution of each risk factor, we added a penalty mechanism that reduces expected alpha as the portfolio’s risk-factor exposure moves further from the average. Unlike mechanically matching average exposures, this is a soft trade-off: an exposure is kept only when the expected alpha behind it outweighs the penalty. Figure 2 illustrates the concept.",[21,97,98],{},[67,99],{"alt":100,"src":101},"Figure 2","\u002Fassets\u002Farticles\u002Fprocess-evolution\u002Ffigure_2.svg",[21,103,104],{},[74,105,106],{},"Figure 2: Portfolio-level hard constraint (±0.5σ) and progressive penalty (illustrative)",[21,108,109],{},"As with every release, we limit cherry-picking bias by working with an evaluation window (2016–2020) and looking only once at the out-of-sample test window (2021–2025).",[21,111,112],{},"We showcase the impact of October’s release with three strategies, but we see the same behavior across all our strategies. The stock-specific share of active risk is measured through Evovest’s internal representation of traditional commercial equity risk models.",[78,114],{},[10,116,118,122,125,130,230,240],{"className":117},[13,14],[35,119,121],{"id":120},"evovest-global-market-cap-weighted-strategy-the-impact","Evovest Global Market-Cap-Weighted Strategy: the impact",[21,123,124],{},"For the Evovest Global Market-Cap-Weighted Strategy, the new version is more diversified: our diversification metric rises from 0.64 to 0.90 and tracking error falls from 4.07% to 3.07%, for a slightly lower gross alpha (from 5.96% to 5.50%) and a higher information ratio (from 1.46 to 1.79). Predicted active risk falls from 2.7% to 2.1%, and the Wasserstein distance to the target distribution drops from 0.20 to 0.12 (a closer match). As a result, the stock-specific share of active risk averages 77.4% over the 10-year period, versus 51.5% for the baseline, and is more stable, with a standard deviation of 9% compared with 12% for the baseline.",[21,126,127],{},[74,128,129],{},"Table 1: Comparative simulation statistics from the baseline to the new version for the Evovest Global Market-Cap-Weighted Strategy (2016–2025)",[131,132,133,149],"table",{},[134,135,136],"thead",{},[137,138,139,143,146],"tr",{},[140,141,142],"th",{},"Simulated metrics",[140,144,145],{},"Baseline",[140,147,148],{},"New version",[150,151,152,164,175,186,197,208,219],"tbody",{},[137,153,154,158,161],{},[155,156,157],"td",{},"Gross Alpha vs MSCI World",[155,159,160],{},"5.96%",[155,162,163],{},"5.50%",[137,165,166,169,172],{},[155,167,168],{},"Realized Tracking Error",[155,170,171],{},"4.07%",[155,173,174],{},"3.07%",[137,176,177,180,183],{},[155,178,179],{},"Information Ratio",[155,181,182],{},"1.46",[155,184,185],{},"1.79",[137,187,188,191,194],{},[155,189,190],{},"Stock-Specific Risk Share",[155,192,193],{},"51.5%",[155,195,196],{},"77.4%",[137,198,199,202,205],{},[155,200,201],{},"Diversification Metric",[155,203,204],{},"0.64",[155,206,207],{},"0.90",[137,209,210,213,216],{},[155,211,212],{},"Predicted Active Risk",[155,214,215],{},"2.7%",[155,217,218],{},"2.1%",[137,220,221,224,227],{},[155,222,223],{},"Wasserstein Distance",[155,225,226],{},"0.20",[155,228,229],{},"0.12",[21,231,232,236],{},[67,233],{"alt":234,"src":235},"Figure 3 - evaluation window","\u002Fassets\u002Farticles\u002Fprocess-evolution\u002Ffigure_3a.svg",[67,237],{"alt":238,"src":239},"Figure 3 - out-of-sample window","\u002Fassets\u002Farticles\u002Fprocess-evolution\u002Ffigure_3b.svg",[21,241,242],{},[74,243,244],{},"Figure 3: Stock-specific share of active risk over time – Evovest Global Market-Cap-Weighted Strategy",[78,246],{},[10,248,250,254,257,262,349,360],{"className":249},[13,14],[35,251,253],{"id":252},"evovest-global-market-neutral-strategy-the-impact","Evovest Global Market-Neutral Strategy: the impact",[21,255,256],{},"For the Evovest Global Market-Neutral Strategy, again, the version deployed in October is more diversified, as our diversification metric rises from 0.82 to 0.96 and volatility (realized tracking error) edges down from 6.7% to 6.5%, with absolute return essentially unchanged (from 14.7% to 14.6%). Predicted active risk falls from 4.7% to 4.4%, and the Wasserstein distance to the target distribution moves from 0.30 to 0.23 (a closer match). As a result, the stock-specific share of active risk averages 91.1% over the 10-year period, versus 71.7% for the baseline, and is more stable, with a standard deviation of 6% compared with 9% for the baseline.",[21,258,259],{},[74,260,261],{},"Table 2: Comparative simulation statistics from the baseline to the new version for the Evovest Global Market-Neutral Strategy (2016–2025)",[131,263,264,274],{},[134,265,266],{},[137,267,268,270,272],{},[140,269,142],{},[140,271,145],{},[140,273,148],{},[150,275,276,287,298,309,319,329,339],{},[137,277,278,281,284],{},[155,279,280],{},"Absolute Return",[155,282,283],{},"14.7%",[155,285,286],{},"14.6%",[137,288,289,292,295],{},[155,290,291],{},"Realized Volatility",[155,293,294],{},"6.7%",[155,296,297],{},"6.5%",[137,299,300,303,306],{},[155,301,302],{},"Reward \u002F Risk",[155,304,305],{},"2.19",[155,307,308],{},"2.25",[137,310,311,313,316],{},[155,312,190],{},[155,314,315],{},"71.7%",[155,317,318],{},"91.1%",[137,320,321,323,326],{},[155,322,201],{},[155,324,325],{},"0.82",[155,327,328],{},"0.96",[137,330,331,333,336],{},[155,332,212],{},[155,334,335],{},"4.7%",[155,337,338],{},"4.4%",[137,340,341,343,346],{},[155,342,223],{},[155,344,345],{},"0.30",[155,347,348],{},"0.23",[21,350,351,356],{},[67,352],{"alt":353,"src":354,"style":355},"Figure 4 - evaluation window","\u002Fassets\u002Farticles\u002Fprocess-evolution\u002Ffigure_4a.svg","width: 100%",[67,357],{"alt":358,"src":359,"style":355},"Figure 4 - out-of-sample window","\u002Fassets\u002Farticles\u002Fprocess-evolution\u002Ffigure_4b.svg",[21,361,362],{},[74,363,364],{},"Figure 4: Stock-specific share of active risk over time – Evovest Global Market-Neutral Strategy",[78,366],{},[10,368,371,375,378,383,466,476],{"className":369},[370,14],"pb-2xl",[35,372,374],{"id":373},"evovest-global-equal-weighted-strategy-the-impact","Evovest Global Equal-Weighted Strategy: the impact",[21,376,377],{},"For the Evovest Global Equal-Weighted Strategy, the new version is more diversified: our diversification metric rises from 0.65 to 0.89 and tracking error falls from 4.4% to 3.4%, for a slightly lower gross alpha (from 7.7% to 6.3%) and a higher information ratio (from 1.76 to 1.85). Predicted active risk falls from 2.8% to 2.3%, and the Wasserstein distance to the target distribution drops from 0.19 to 0.12 (a closer match). As a result, the stock-specific share of active risk averages 80.7% over the 10-year period, versus 52.1% for the baseline, and is more stable, with a standard deviation of 9% compared with 12% for the baseline.",[21,379,380],{},[74,381,382],{},"Table 3: Comparative simulation statistics from the baseline to the new version for the Evovest Global Equal-Weighted Strategy (2016–2025)",[131,384,385,395],{},[134,386,387],{},[137,388,389,391,393],{},[140,390,142],{},[140,392,145],{},[140,394,148],{},[150,396,397,408,417,427,437,447,457],{},[137,398,399,402,405],{},[155,400,401],{},"Gross Alpha vs MSCI World EW",[155,403,404],{},"7.7%",[155,406,407],{},"6.3%",[137,409,410,412,414],{},[155,411,168],{},[155,413,338],{},[155,415,416],{},"3.4%",[137,418,419,421,424],{},[155,420,179],{},[155,422,423],{},"1.76",[155,425,426],{},"1.85",[137,428,429,431,434],{},[155,430,190],{},[155,432,433],{},"52.1%",[155,435,436],{},"80.7%",[137,438,439,441,444],{},[155,440,201],{},[155,442,443],{},"0.65",[155,445,446],{},"0.89",[137,448,449,451,454],{},[155,450,212],{},[155,452,453],{},"2.8%",[155,455,456],{},"2.3%",[137,458,459,461,464],{},[155,460,223],{},[155,462,463],{},"0.19",[155,465,229],{},[21,467,468,472],{},[67,469],{"alt":470,"src":471},"Figure 5 - evaluation window","\u002Fassets\u002Farticles\u002Fprocess-evolution\u002Ffigure_5a.svg",[67,473],{"alt":474,"src":475},"Figure 5 - out-of-sample window","\u002Fassets\u002Farticles\u002Fprocess-evolution\u002Ffigure_5b.svg",[21,477,478],{},[74,479,480],{},"Figure 5: Stock-specific share of active risk over time – Evovest Global Equal-Weighted Strategy",{"title":482,"searchDepth":483,"depth":483,"links":484},"",2,[485,487,488,489],{"id":85,"depth":486,"text":86},3,{"id":120,"depth":486,"text":121},{"id":252,"depth":486,"text":253},{"id":373,"depth":486,"text":374},"How the October 2026 update to Evovest's investment process and portfolio construction improves portfolio diversification","md",{"date":493,"category":494},"2026-11-09","process_and_discovery",true,"\u002Fpublications\u002Farticles\u002Fen\u002Fprocess-evolution",{"title":5,"description":490},"publications\u002Farticles\u002Fen\u002Fprocess-evolution","sqjYzbB0QRKEg7jCetYpQUUApDo-DFFxHug2ATc7H-4",1794323674455]