Kelley Rating (one asterisk = lowest, five asterisks = highest):

  • Ease of navigation, design of interface and learning curve ****
  • Carries out the goal of the product as advertised *****
  • Overall usefulness ****

Gsphere, from Gravity Investments LLC, is a visual asset allocation software program. It stresses the analysis of portfolio diversification toward the goal of determining optimal asset allocation. It examines a portfolio, scores it for diversification of investments and quantifies the existence and effect diversification has on the investment portfolio.

The publisher states that Gsphere is designed to serve “investment advisors, pension plans and their advisors, alternative investment managers, wealth managers, portfolio managers and sophisticated private investors seeking to create or present an optimally diversified portfolio.” Gsphere’s emphasis on ultra-high-net-worth clients whose wealth tends to be too highly concentrated is useful to trusts, family offices, endowment funds and charitable organizations.

According to the publisher, Gsphere is the only risk metrics analysis system currently available to precisely measure and truly quantify the diversification of a given portfolio. The publisher refers to this process as “True Diversification.” Gspherefocuses on diversification rather than risk or market volatility, in assisting with portfolio evaluation. It helps to identify assets that optimize “True Diversification” and assets that are inefficient for this purpose. The “third dimension” of Gsphere moves from traditional asset allocation to optimizing diversification.

Gsphere recommends specific allocation percentages from a list of assets and helps to determine the degree of correlation among assets as it affects diversification and portfolio performance. It highlights the assets that have a correlation in movement during market cycles and suggests the addition of other, uncorrelated, assets to the portfolio. Diversification is displayed in 3D, equating portfolio balance to physical balance.

Gsphere can evaluate investment portfolios containing: private holdings, mutual funds, stocks, hedge funds, exchange-traded funds, non-traded securities and alternative investments such as gold, natural resources, land, etc. It allows the user to manually enter other types of assets and import such things as data from a real estate investment trust.

Based on the publisher’s observation, diversification, properly done, performs better in preserving capital over a full market cycle than a risk/return analysis (preserving capital in a down market without sacrifice of return in a bull market). The publisher asserts that it has done research with the University of Denver, Daniels College of Business, finding that even 1 extra percent of Intra Portfolio Correlation was responsible for protecting 98 basis points of capital during bear markets, thus establishing that “True Diversification” preserves capital in a bear market with no sacrifice on the upside.

Gsphere also facilitates more knowledgeable fiduciary oversight, particularly in evaluating a managed portfolio in a declining, or uncertain, market. It may be advantageous to trust and other fiduciary managers in terms of prudent investment. Note that Section 3 of the Uniform Prudent Investor Act provides that “[a] trustee shall diversify the investments of the trust unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying.” The very meaning of “diversify” may be affected by the portfolio evaluation methodology of Gsphere and its underlying research.

For a further explanation of the concepts behind Gsphere’s diversification modeling, see “Delivering DiversificationInvestment Advisor (Jan. 1, 2010) and “Why diversification is still the go-to risk killerRABiz (Dec. 1, 2009), both by James Damschroder, the founder and chief of financial engineering of Gravity Investments LLC.

Competitors

SunGard Wealthstation, discussed “SunGard Wealthstation,” Trusts & Estates Technology Review (Jan. 27, 2010) helps in developing a portfolio arrangement with risk tolerance settings, asset allocation weight, rebalancing and portfolio suggestions.

Odyssey InvestmentManagerprovides portfolio modeling for performance and risk.

ClariFi includes portfolio development and modeling in its services.

WealthBench furnishes portfolio optimization based on risk analytics.

What’s It All About?

The Gsphere process involves entering the client’s portfolio as is, scoring it, optimizing diversification within the existing portfolio, and identifying and adding additional assets for improved diversification. The user may create benchmark or model portfolios and client portfolios for a specific client based on a risk and return discussion. Gsphere allows you to plug in a given type of investment group (e.g., the S&P index components) and score the diversification of such a portfolio.

The computer modeling done by Gsphere results in a 3Dportfolio depiction based on the asset data entered and the portfolio model selected.

The creation of a portfolio to be analyzed involves these steps:

  1. Enter name of the portfolio, total dollar amount and whether the portfolio is a model or specific to a client.
  2. Enter securities by typing an identifier (ticker symbol or company name) or by importing from an Excel file (name and most recent price are retrieved by Xignite or Reuters financial market data).
  3. Select a portfolio model (e.g. S&P)
  4. Select historical time periods. One continuous time period can be selected or multiple periods can be specified. Multi-sample time periods provide a means to change the weighting of given date ranges, or exclude a date range from the historical data sampling to, for example, eliminate as aberrant market bubbles.
  5. Specify the risk-free rate of return as the basis of visualizing the portfolio (typically set at the return on short-term U.S. Treasury bills).


Gsphere chooses the allocations among the components of the portfolio. You may view the results graphed as individual assets, or as the portfolio, or as represented by the globe or by eight diversification boxes (created by three intersecting planes). The portfolio graphic shape represents components of your portfolio.

Gsphere looks worldwide for assets that will enhance diversification and makes recommendations to that effect. You may then experiment with other portfolio components and view their effect on the diversification results. This service makes its own projections based on past performance, but other suppositions or performance projections may be entered. The comparison of assets within a portfolio is, by default, done by using the ratio of the reward to be expected from an asset to its risk through the Sharpe ratio to compare the assets of the portfolio.

The graphical model is based on using the risk-free rate of return as the center of a sphere, displaying lines of latitude and longitude. It then plots each asset in the portfolio as a line from the center of the globe with the asset’s Sharpe ratio determining the length of the line and the angles between the lines representing the relationship of each line to the other. The length of the line of an asset represents the return from that asset in excess of the risk-free point of the globe. The higher the correlation of one asset to another, the closer together the lines representing those assets will be. The globe thus displays a 3Drepresentation of the diversification of the portfolio, whereby the degree of correlation among the assets is represented by the third dimension of the graphic.

A summary of the key numbers applicable to the portfolio being analyzed appears at the bottom of the screen. You can go to a screen with a detailed tabular listing of the assets and their characteristics, showing the risk ratios, including the Sharpe ratio, the Sortino ratio and Intra Portfolio Correlation. Gsphere also generates rate of return numbers. When the tabular screen is displayed, a navigation pane appears at the left. Buttons along the top of the screen allow the user to vary the display of information. The product also displays data in bar graph and pie chart graphic forms.

The math of the Gsphere methodology is described on the publisher’s website as it relates to the Diversification Measurement screen created by Gsphere.

Although the Gsphereproduct versions run from desktop software to more complex and educational web-based facilities, it is essentially a consulting or “subadvisor” service that encompasses desktop software, web-based facilities and counseling in the application of the product. Gsphere’s various versions may be customized for higher-end installations. The publisher recommends stand-alone software for one or two users, client/server configurations for small teams, and tailored web applications for mid- to large-size organizations, all furnished as part of a consultation arrangement.

Gravity Investments’ SEC registered subadvisory (RIA), Gravity Capital Partners, and the suite of proprietary financial engineering consulting services they offer, provide an advisor with diversification search, construction of tailored portfolios for the advisor’s clientele and facilities for improving the advisor’s ability to communicate with the client.

What About Help and Support?

A Certified Advisor may guide the user through the calculation and interpretation of the results, but, typically, the use of Gsphere is done through an association between the customer and the publisher. Customer Support is available by phone and email. The publisher provides frequent free webinars on diversification and portfolio modeling.

Where Do You Get This Service?

Pricing depends on the installation, build, delivery customization and training of a given application. Pricing also varies between fixed software costs and revenue sharing business building partnerships. A custom portfolio review with the prospective client is held to examine and determine specific needs.

Gsphere is furnished not as a software product, but through Gravity Capital Partners marketing the Gsphere process as a subadvisor, or consulting company, to assist an advisor in building more efficient portfolios and more effective communication with clients.

A basic level MyDiversification implementation of the operation of Gsphere is available through the publisher’s website where anyone can sample the action of this product and learn enough to initiate a discussion on diversification with his advisor or find an advisor. MyDiversification may be custom branded to an advisor’s website.

This service is available through:

Gravity Investments, LLC
475 17th Street, Suite 450
Denver, Colo. 80202
Phone: 970-GRAVITY

To locate a Gsphere advisor:
Phone: 970-372-0392
inquiries@GravityInvestments.com.

Bottom Line

Gsphere provides a unique method to evaluate portfolios and emphasize composition, as it does diversification rather that just risk and return. In addition to what it provides to investment advisors, it may also provide a critical element of investment planning and management of risk exposure to fiduciaries.

Trusts & Estates magazine is pleased to present the monthly Technology Review by Donald H. Kelley—a respected connoisseur of the software and Internet resources wealth management advisors use to further their practices.

Kelley is a lawyer living in Highlands Ranch, Colo. and is of counsel to the law firm of Kelley, Scritsmier & Byrne, P.C. of North Platte, Neb. He is the co-author of the Intuitive Estate Planner Software, (Thomson Reuters). He has served on the governing boards of the American Bar Association Real Property Probate and Trust Section and the American College of Tax Counsel. He is a past regent and past chair of the Committee on Technology in the Practice of the American College of Trust and Estate Counsel.

Trusts & Estates has asked Kelley to provide his unvarnished opinions on the tech resources available in the practice today. His columns are edited for readability only. Send feedback and suggestions for articles directly to him at dhkelley@qwestoffice.net.