Active Research
Active research for practical portfolio construction
5thN Financial’s research supports actively managed ETF construction through Expanded Portfolio Theory, asset modeling, constraints, and systematic backtesting.
Research framework
Expanded Portfolio Theory and HiFuPi
Expanded Portfolio Theory
EPT is a flexible allocation framework for portfolio problems that may include realistic constraints, turnover limits, nonlinear positions, and operating rules.
HiFuPi asset model
HiFuPi provides the asset-model inputs used by the EPT allocation process for forward-looking analysis and backtesting.
MPT assumptions and EPT flexibility
MPT contains an embedded set of assumptions. When those same assumptions are imposed on EPT, the resulting solution is the same as MPT. In that sense, MPT is a special case within the broader EPT framework.
EPT does not require those assumptions to be fixed in advance. It can therefore address a wider range of portfolio situations, including alternative constraints, turnover rules, operational requirements, tax considerations, and objectives that do not fit neatly inside classic MPT.
Practical implication
EPT does not reject MPT. It preserves MPT as one valid case while providing a broader computational language for portfolio design, testing, and implementation.
Research-to-operation pipeline
1. Define the universe. Select eligible securities and required data.
2. Generate inputs. Build return, risk, liquidity, or signal estimates.
3. Apply EPT constraints. Add holdings, turnover, bounds, and operating rules.
4. Backtest and verify. Evaluate allocations, returns, drawdowns, and implementation effects.
5. Deliver outputs. Produce holding files, reports, graphics, and audit trails.