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Portfolio Construction Matters

A Land of Confusion?

Asset owners and managers often face conflicting questions over the portfolio construction process. These might include philosophical issues such as which, if any, investing style to choose or whether to go active/passive. Or they could cover practical matters such as understanding the impact of climate change on portfolio returns, or risk budgets versus certain asset class allocations.

These papers provide insight into the wide-ranging dilemmas and choices present during portfolio construction. Risk budgeting, environmental impact, style investing, and diversification techniques are among the topics covered.


sunny side- street sign portfolio construction

Top-Down Portfolio Implications of Climate Change (QMA, 2021)

This paper by QMA investigates what impact a range of climate change scenarios might have on economic growth, inflation, and long-term asset return forecasts.

The Role of Cryptocurrencies in Investor Portfolios (State Street, 2021)

State Street examines the potential role that Bitcoin might play as a portfolio diversification tool from a multi-asset, total portfolio perspective.

Style Bias and Active Performance (S&P Dow Jones Indices, 2021)

History and academic research suggest most active managers tend to underperform passive benchmarks. This paper by S&P Dow Jones Indices identifies what contributed to active management outperformance in three of the last twenty years.

Growth and Value Indexes: The enduring utility of style (FTSE Russell, Mar 2021)

FTSE Russell's paper looks at the development and history of their Growth and Value Indices, outlining how a wide variation of investment approaches and styles called for more granularity than was offered by the original broad-based index benchmarks.

Building Resilient Portfolios for Uncertain Times (WisdomTree Investments, 2020)

For compliance reasons, this paper is only accessible in the UK & Europe

WisdomTree Investments suggests ways in which investors might approach the difficulties of balancing protection with the ability to share in upside protection.

Alternative Risk Premia Funds in 2020 – Why so much pain? (HSBC, Mar 2021)

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

HSBC Asset Management explores why 2020 was such a testing year for alternative risk premia (ARP) funds, noting that while many types of risk asset fund 'bounced back' strongly after the Covid-19 crisis, ARP funds continued to underperform.

Generating Tax-Alpha with Optimised Index Tracking (Qontigo, 2021)

Qontigo experts argue for active tax management in portfolios tracking cap-weighted equity market indices. They believe tax-alpha can be generated with relatively low tracking error.

Quantifying and Managing Portfolio Concentration Risk (Moody's Analytics, 2021)

Moody's Analytics offers a framework to help investors ascertain a credit portfolio's concentration risk.

How to Turn Value at Risk into Value from Risk (Qontigo, 2021)

Where equity mandates are divided into separate (often geographical) portfolios, it can become easy to overlook the risks of these individual portfolios and how they might react to specific shocks. Qontigo argues that using an overview rather than an individual, segregated view of risk may result in superior returns for a lower risk element.

Expanding the Liquid Fixed Income Toolkit (T. Rowe Price, 2021)

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

T. Rowe Price advocates that investors turn to the more esoteric reaches of the fixed income sectors as alternatives to private debt markets. These are less transparent and liquid than public markets, while potentially creating an additional governance burden.

De-Risking Report 2021 (Willis Towers Watson)

With the recovery in asset markets, Willis Towers Watson suggests some ways in which pension funds might reduce their exposure in end-game scenarios.

Annual Survey of Emerging Risks (Society of Actuaries, 2021)

The fourteenth Emerging Risks Survey from the Society of Actuaries has interviews from 188 (predominantly North American) participants. Climate change and cyber/network security issues continue to be the top two risks, while regional instability and demographic shifts have fallen out of the top five.

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