Risk and Portfolio Construction - Articles & White Papers
White papers and articles on portfolio construction and risk management for investment managers. Maintaining an appropriately diversified portfolio, managing portfolio risk, and controlling the risk/reward characteristics of a fund are essential basics for money managers. Academic papers on portfolio optimization are particularly helpful in this regard. The most frequently downloaded...
research in this section relates to reports on measuring investment risk, for instance: analysis of the time horizon over which risk is best estimated, and using risk factors as building blocks for portfolio diversification. Papers on tracking error have been well received as have papers on tail risk and fat tails. A number of articles in this section argue the case for concentrated portfolios and a need for more active management. Surveys on risk management and risk management systems have proved popular, enabling members to understand the risk practices employed by their peers. Other research on portfolio risk in this section includes papers on low volatility investing, equity risk premia, risk parity, models for forecasting asset class risk and the capital asset price model (CAPM).
US stock-bond correlation, which plays an important role in institutional portfolio construction, has been persistently negative for the last 20y. This negative correlation allows stocks and bonds to serve as a hedge for each other, enabling CIOs to increase stock allocations while still satisfying a portfolio risk budget.…
In 1952, the American economist Harry Markowitz published a paper titled 'Portfolio Selection’. In it, he introduced the concept of "the efficient frontier" which he described as a collection of portfolios that contain the highest returns for a given amount of risk. The paper later gave rise to Modern…
Many factors can explain return attribution differences in credit portfolio returns – curve, interest rate positioning, sector allocation, and security selection. Solid bottom-up fundamental credit research is certainly a cornerstone of any successful corporate bond management strategy, as most managers generally achieve a…
Targeting portfolio-level ESG outcomes may not require the extensive individual-security research that has become the norm for most socially responsible investments. In this paper, Intech illustrates how to capture ESG characteristics using statistical analysis of ESG ratings to identify persistent and dominant systematic…
Targeting portfolio-level ESG outcomes may not require the extensive individual-security research that has become the norm for most socially responsible investments. In this paper, Intech illustrates how to capture ESG characteristics using statistical analysis of ESG ratings to identify persistent and dominant systematic…
This paper outlines a pragmatic and multi-pronged approach to cashflow forecasting that SimCorp believes can form the basis of a prudent system for making sense of this complex, challenging, yet increasingly relevant, corner of the investment world. It is also to be seen as an integral part of SimCorp’s strategy management,…
Core infrastructure strategies have been growing in popularity in recent years. The continued fall in bond yields has meant that for some investors, the returns on offer in debt markets have not been sufficient to meet their long-term liabilities. This has pushed them to look for higher-returning alternatives, and core…
Dimensional Fund Advisors study the performance of different investment and spending strategies for retirement. Investment strategies include wealth-focused glide paths that combine equities with short-term, high-quality fixed income. They also consider an income-focused glide path that combines a moderate equity allocation…
Targeting portfolio-level ESG outcomes may not require the extensive individual-security research that has become the norm for most socially responsible investments. In this paper, Intech illustrates how to capture ESG characteristics using statistical analysis of ESG ratings to identify persistent and dominant systematic…
A factors-first approach reveals how traditional asset allocation can mask a portfolio’s risk exposures. For example, even though the average endowment has more than 50% of its portfolio allocated to alternatives, equity risk accounts for 95% of the total risk while idiosyncratic risk accounts for less than 4% according to…
Liquid alternative strategies can provide investors with flexibility during periods of economic and market volatility, and PGIM recently brought together a panel of experts to discuss the opportunity set in liquid alts
Physical climate risks are either acute or chronic. Acute risks include droughts, floods, extreme precipitation and wildfires. Chronic risks include rising temperatures, the expansion of tropical pests and diseases into temperate zones, and an accelerating loss of biodiversity. These threats pose both idiosyncratic and…
The growing popularity of alternative data has opened new opportunities in the political risk space, including novel methods of devising systematic investment and asset allocation frameworks that are uniquely informed by a new generation of political risk indicators. S&P Dow Jones Indices has collaborated with GeoQuant,…
In this paper, S&P Dow Jones Indices introduces the new S&P 500 Futures Daily Risk Control 5% Index (the Risk Control 2 Minimum Variance), which is the latest enhancement to S&P DJI’s Risk Control 1 (RC 1) and Risk Control 2 (RC 2), and a variation on our existing standard RC 2 methodology. In this new index,…
The National Association of Insurance Commissioners (NAIC) regularly updates its regulations. In 2020, the NAIC proposed a more granular set of designations for bonds. When released, the proposed RBC factors will vary for Life and non-Life insurers due to the different statutory and tax accounting treatments. Separate NAIC…
As geopolitical factors increasingly influence markets, investors need to gauge the impact on investments. Most experts consider political risks unquantifiable, but this publication shows how such risks can be quantified and used for risk management.
Cryptocurrencies have attracted widespread interest among private investors and even some hedge funds as a vehicle for speculation. But what’s their role in a portfolio – growth engine or diversifier? State Street explores the potential role of bitcoin in multi-asset portfolios based on their track record for diversifying…
In an unprecedented development, many global bond markets have been trading at negative nominal yields. This publication provides in-depth analysis of the causes of negative yields, the economic and financial impacts, and the outlook for investors.
Diversification return has long been supposed to represent the incremental return associated with portfolios that are regularly rebalanced compared to those that are not. In this paper, FTSE Russell tests the hypothesis that it can be correctly associated with a 'rebalancing premium' for various factor portfolios, and then…
Unlike liquid markets and real estate, a lack of publicly available data has made assessing risk more challenging for infrastructure equity assets. Laurence Monnier, Head of Quantitative Research – Real Assets, considers the options for investors looking to complement qualitative assessments with quantitative rigour.
