All topics

Risk Management and Portfolio Optimization

  • ,  Chief Executive |
  • 07 Nov 2018
  • Updated 12 Dec 2018

White Papers on Risk Awareness, Measurement, Management, and Mitigation

The scope of risk management within the investment industry is extensive, owing to the broad array of risks that are present.  It can also be said that risk aversion is a natural human phenomenon, but that doesn't mean that uncertainty has to be feared. 

The below list of papers shed some light on investment manager risk awareness and the optimization of investment portfolios.  Robeco starts off by revisiting downside risk and CAPE ratios in light of recent equity market turmoil.  Other papers discuss the mitigation of specific risks via options strategies, ETFs, or interest rate hedges. 


Risky CAPE ratios? Keep calm and reduce downside risk (Robeco, 2018)
Back in June, Robeco warned investors to repair the roof while the sun was still shining, because the high CAPE ratios increased the odds for bigger drawdowns. And then came October.

Smart(er) Beta via Optimization and Custom Risk Modelling (Axioma, Oct 2018)
An optimizer and a custom risk model can be used together to create a portfolio of precise factor exposures with a high information ratio and an intuitive profile of return attribution. 

Diversification, Volatility, and Surprising Alpha (Intech, Nov 2018)
(For compliance reasons, this paper is only accessible in certain geographies)
Given that portfolios with certain factor exposures have bene known to beat cap-weighted indexes, this paper re-examines this phenomenon and attempts to decompose portfolio returns in a unique way.

Step Optimization and Portfolio Design (Jacobi, 2018)
Step optimization practices allow portfolio managers to visualize and execute asset allocation changes in incremental steps, leading to a potentially more robust optimization process. 

Indexing Risk Parity Strategies (S&P Dow Jones Indices, 2018)
S&P Risk Parity Indices represent multiple asset classes using futures, in order to accurately reflect the risk-return profile of risk parity funds.

Portfolio Construction: Time to get your core in shape (BlackRock, 2018)
(For compliance reasons, this paper is only accessible in certain geographies)
Regulation, technology and evolving client needs demand a re-think of portfolio construction that will revolutionise the role of index strategies in portfolios.

The Currency-Hedging Dilemma (Morningstar, 2018)
Funds that employ currency hedges must navigate foreign interest rates, exchange rates, hedging costs, and taxation issues.  Morningstar takes all of these into account, advising investors how to best choose a currency-hedged fund. 

Stress Testing for Alphas (Axioma, Oct 2018)
This paper by Axioma describes an innovative portfolio-construction workflow that takes its return expectations directly from the results of a stress test.

Defense Beyond Bonds: Defensive Strategy Indices (S&P Dow Jones Indices, 2018)
S&P Dow Jones Indices looks at ways to use defensive strategy indices to improve the risk-return profile of traditional equity and fixed income portfolios. 

Tail Risk Adjusted Sharpe Ratio (Amundi AM, 2018)
This Amundi paper provides four methods for composing a tail-risk adjusted Sharpe Ratio so that extreme downside risks are more accurately encompassed.

Understanding the Diversity of Options Strategies (Swan Global, 2018)
Synthetic securities, options, and derivatives can all be used to hedge portfolio risk.  Swan's primer on options touches on all of these, with particular emphasis on options strategies.

Institutional ETF Trading 2018: The Tools Beyond the Tool (BlackRock, Nov 2018)
(For compliance reasons, this paper is only accessible in the United States)
In order to aide with buy-side ETF adoption, TABB presents this guide for fine-tuning ETF trading practices. 

Rethinking Asset Allocation (KKR, Oct 2018)
Multi-asset portfolios may need to be restructured to take account of correlations in the current market environment.  KKR presents their in-depth multi-asset recommendations in this 33-page report. 

Robust Asset Allocation for Robo-Advisors (Amundi AM, 2018)
Some of the toughest challenges for robo-advisors to overcome in the next decade will likely involve the creation and automation of robust models for asset allocation. 

Pension Risk Management: 3 Questions for Plan Sponsors (Capital Group, 2018)
(For compliance reasons, this paper is only accessible in the United States)
The authors point towards pension asymmetry, interest rate hedging protocol, and risk budgeting as critical issues within pension risk management. 

The asset allocator's table (Manulife AM, Oct 2018)
(For compliance reasons, this paper is only accessible in the EMEA region)
In this excerpt from Manulife's larger 'Interim Outlook: October 2018' document, Robert Boyda elucidates his tactical and strategic viewpoints on multiple asset classes.

Portfolio Management with Drawdown-Based Measures (JAI, 2018)
This article evaluates the portfolio implications of using drawdowns in allocation decisions by examining several established and new drawdown-based approaches.