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Overlay Strategies for Alpha Generation

Overlays, Portfolio Risk, and Tactical Rebalancing

Overlay strategies often rest atop traditional strategic allocations. In our first paper below, QMA explains how portable alpha overlays may be the best hope for pension plans with large unfunded liabilities. Overlays can also be complementary to an organization's strategic allocation when used in a tactical manner. In so doing, they can take advantage of opportunities presented by volatile market environments. 

The list  below covers many aspects of overlay strategies, including the use of overlays to manage risk, to generate alpha, and to tactically rebalance institutional portfolios.

overlay strategies

Absolute Return Overlay Solutions: The best hope (QMA, 2020)

Portable alpha overlays can be used to enhance returns without decreasing exposure to strategic investments that are long-term.

Private Equity is From Mars, Hedge Funds are From Venus (Invesco, May 2020)

For compliance reasons, this paper is only accessible in certain geographies

This paper looks at several types of alternative assets to determine which are core assets, which are more tactical, and which should have little role in institutional portfolios.

A Tactical Asset Allocation Workflow (Axioma, 2018)

In this paper, Axioma looks at strategic versus tactical asset allocation practices, specifically the process by which a team employs an active overlay portfolio as a form of tactical asset allocation.

Rethinking ESG Investing: Core-Satellite Framework Q&A (QMA, 2019)

ESG investing can be executed via a core-satellite approach; a core manager with controlled ESG exposure plus a specialist ESG manager. QMA explains further.

Using Listed Index and ETF in Endowment Risk Management (Nasdaq, 2019)

This study looks at options-based strategies for endowment portfolios, such as put spread collar overlays.

Rebalancing Through an Overlay Strategy During Periods of Volatility (Parametric, 2019)

Volatile markets can create opportunities for investors to add alpha via rebalancing, but both responsiveness and discipline are required in order to execute these trades efficiently. An overlay strategy may be the answer.

Currency Hedging: An introduction (Meketa, 2017)

This paper examines the prospect of hedging currency risk, evaluating the different methods used to established hedges and types of currency management overlay programs, as well as the historical risk, returns and costs of hedging developed market and emerging market currency exposures.

A CVar Scenario-Based Framework For Minimizing Downside Risk In Multi-Asset Class Portfolio (Axioma, 2017)

This 22-page paper, published in The Journal of Portfolio Management, considers a scenario-based conditional value at risk (CVaR) approach for minimizing the downside risk of an existing portfolio with multi-asset class (MAC) overlays.

Rethinking Risk and Rebalancing Portfolios (Blackrock Institutional blog, Jun 2020)

For compliance reasons, this paper is only accessible in the United States and Canada

A panel from BlackRock discusses total portfolio risk, and their abilities to rebalance portfolios accordingly.

Enhanced Portfolio Optimization (2020)

This paper discusses a method for enhanced portfolio optimization (EPO) that solves some of the problems within standard mean-variance optimized portfolios.

Optimizing Yield Curve Positioning for Multi‑Asset Portfolios (PIMCO, 2019)

What is the optimal allocation of duration for portfolios? Experts at PIMCO explain why a dynamic swap overlay strategy merits consideration.

The 21st Century Portfolio*: Investing for the grandchildren (Invesco, 2019)

For compliance reasons, this paper is only accessible in certain geographies

Invesco's interpolation of the optimal approach for a 21st century portfolio includes a core of real estate or equity, plus thematic satellites with exposure to carbon reducing tech, Africa, carbon capture, and innovations for replacing labour.