The methodology that North Central Trust Company adheres to is deeply rooted in the Modern Portfolio Theory developed by Dr. Harry Markowitz. Within the framework of this theory, the concepts of risk, diversification and the efficient frontier can help explain the basic principles of our investment approach.

Every investment and investment style has a different type of risk associated with it. Some risks can be avoided, while others cannot. In general, investors are willing to take on more risk for the possibility of obtaining a higher rate of return.

By analyzing and understanding the relationships between different asset classes, our goal is to construct a portfolio that not only meets the investment objectives of our clients, but also does so by exhibiting the lowest level of volatility or risk. The efficient frontier helps illustrate the optimal portfolio mix for any given level of risk.

Below is a basic illustration of the efficient frontier. Without particular attention to risk and diversification, portfolios will typically plot below the efficient frontier line. This means that the portfolio is experiencing one of two things: 1) the portfolio is not achieving enough return for the level of risk or 2) the portfolio has taken on too much risk for the amount of return. Paying attention to risk characteristics and relationships between asset classes has helped North Central Trust Company to achieve strong performance for our clients.

Zephyr Allocation ADVISOR: North Central Trust Company