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Asset Allocation for Additional Alpha

  • ,  Chief Executive |
  • 12 Nov 2018
  • Updated 19 Nov 2018

Asset Allocation for Additional Alpha: the best recent papers

How do institutional portfolio managers allocate assets in a way that adds alpha to their portfolios? One option is to employ a short-term tactical overlay on top of their more long-term strategic allocation. Another is to make longer-term allocations to undervalued asset classes/regions or to identify investments that will benefit from secular trends.

After recently writing about managing asset allocation to optimize portfolios for risk, the papers below examine the opposite side of the coin - how to generate alpha.

asset allocation alpha

A Tactical Asset Allocation Workflow (Axioma, 2018)
The active overlay is an integral part of the tactical asset allocation playbook. See how tactical and strategic allocations work in action in this Axioma workflow on a hypothetical portfolio. 

The Alpha/Beta Allocator: 6 steps to a better portfolio (Lyxor ETF, Nov 2018)
(For compliance reasons, this paper is only accessible in the UK and Europe)
How are active managers performing versus their respective indices?  Lyxor reviews active manager performance in Q3 and suggests ETFs for relevant sectors and regional equity allocations. 

Private vs. Public Equity Returns in Multi-Asset Portfolios (State Street, 2018)
By quantifying how a PE investment program’s breadth affects its risk and return profile, State Street aims to help investors effectively allocate across private and public assets.

Let's talk about actual investing - Q4 2018 (Baillie Gifford)
Actual investing involves the deployment of capital to fund the projects of company managers and entrepreneurs who can generate profits. In this paper, Baillie Gifford advocates the return of active managers to actual investing.

For and against China as a standalone allocation (Fidelity Intl, Jul 2018)
(For compliance reasons, this paper is only accessible in the UK and Europe)
Given its under-representation in traditional indices for both equity and fixed income - should investors focus on China separately?

Investment Insights: The multi-asset opportunity in China (UBS AM, Oct 2018)
UBS Asset Management states why the case for investors to allocate to a standalone, multi-asset exposure to China is becoming increasingly compelling. 

How to Harness Volatility to Unlock Alpha (Intech)
(For compliance reasons, this paper is only accessible in certain geographies)
Regular rebalancing can lead to the compounding of excess growth and positive alpha. 

Rotation Strategies in the Australian Market (S&P Dow Jones Indices, 2018)
The authors examine both offensive sector price momentum and defensive sector rotation strategies in the Australian equity market.  

The case for floating-rate loans as a strategic allocation (Eaton Vance, 2018)
(For compliance reasons, this paper is only accessible in the United States and Canada)
High yield per duration, low correlations to other debt, and coupons that provide protection in a rising rate environment are arguments in favor of increasing allocations to floating-rate loans.

Rethinking Real Assets (bfinance, 2018)
The authors examine the benefits of diversification within allocations of real assets, given the variety of structures and strategies that are available. 

Real Assets' Role in Public Pension Portfolios (JP Morgan AM, 2018)
JP Morgan Asset Management presents the case for core real assets as a strategic allocation for public pension portfolios.

Asset Allocation Framework for Illiquid Private Assets (PGIM, 2018)
(For compliance reasons, this paper is only accessible in the United States)
How do investors determine the optimal mix between liquid and illiquid allocations to private assets?

Overview of Alternative Risk Premia (“ARP”) Strategies - Neuberger Berman, 2018
(For compliance reasons, this paper is only accessible in certain geographies)
The authors describe a framework to assist investors in navigating the complex and diverse world of ARP strategies.

Multi-asset structures: 4 investment ideas for a siloed world (Wellington, 2018)
Wellington's Wendy Cromwell presents four outside-of-the-box ideas for harnessing additional alpha for multi-asset portfolios.

Equities for the Long Run? (LGIM, Jun 2018)
(For compliance reasons, this paper is NOT accessible in the United States and Canada)
Investors may need to build more assumption uncertainty into models that incorporate ERP-based projections.

Narrowing the return gap: 10 steps (Wellington Management, 2018)
Wellington presents 10 potential strategies for pension plans and endowments that are looking to bridge the gap between expected asset class returns and overall portfolio targets.

The Long-Run Drivers of Stock Returns: Total Payouts and the Real Economy (Financial Analysts Journal, 2017)
This Financial Analysts Journal article examines a data set going back over 140 years, showing that total payouts (stock dividends plus stock buybacks) are key drivers of long-term equity returns.