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).
The authors provide an overview of factor investing in fixed income markets, then describe a particular portfolio construction methodology that may have the potential to minimize some of the pitfalls of factor integration while preserving the benefits of factor utilisation.
Our recent paper “What, Exactly, Is a Factor?” examined various ways of constructing a portfolio used to calculate factor returns. We demonstrated that the absence or presence of a number of common constraints—such as a universe limitation—could have a large impact on a portfolio’s exposures and returns. We also showed how…
Is the combination of real assets in investors’ portfolios meeting their investment objectives? Investors may arbitrarily group real assets into a single category when constructing their portfolios. However, real assets exhibit diverse features and macroeconomic sensitivities that should be carefully assessed during the…
Factor investing has never been as popular as it is today. However, with the propagation of this type of investment approach, the equity space is becoming increasingly saturated with more and more factors that are ever more removed from academically-grounded research. This paper discusses factor definitions used in…
Insurers, pension funds, banks and other institutional investors around the world have embraced alternative asset classes to help close the gap on returns. However, despite their allure, asset management operations are finding it harder to support alternatives cost effectively. If managing non-traditional asset classes are…
Investors’ appetite for stocks frequently mentioned in the news is often raised to explain the Volatility effect. But our empirical analysis shows this theory holds little water.
Defensive equity strategies have obvious appeal, but how do you get the most out of their potential benefits? We look at how to best differentiate between the multitudes of approaches, evaluate and classify them by outcome, and implement them within your equity allocation and overall portfolio.
Defensive equity strategies have obvious appeal, but how do you get the most out of their potential benefits? We look at how to best differentiate between the multitudes of approaches, evaluate and classify them by outcome, and implement them within your equity allocation and overall portfolio.
We believe that a better approach for investors seeking traditional EM exposure is through actively managed strategies that focus on country-level macroeconomic and political research and standalone analysis of specific risk factors such as currency, credit spreads and interest rates.
In this research paper, we explain why efficient factor investing requires an understanding of how factor characteristics drive portfolio returns.
Using a characteristics-based multi-factor return model, we analyze the performance of factor-based equity portfolios and show that generic single-factor portfolios are…
The exercise of translating a specified future investment objective into a strategy to be implemented in the present requires vision. It necessitates the ability to effectively evaluate today’s opportunities, conceptualize the risks that may materialize across an investment horizon, and implement a plan to manage those risks…
The longest equity bull market in history, persistently low interest rates and increased longevity have sparked renewed interest in defensive equity investing. Defensive equity strategies now comprise a mature category, which demands a fresh look: what is a defensive equity strategy, why does it deliver, what are the risks,…
The longest equity bull market in history, persistently low interest rates and increased longevity have sparked renewed interest in defensive equity investing. Defensive equity strategies now comprise a mature category, which demands a fresh look: what is a defensive equity strategy, why does it deliver, what are the risks,…
In this detailed paper, Axioma analysts look back at stock market performance in the second quarter of the year. It was a volatile quarter but it all ended with a strong first half of 2019. The rally that started in the first quarter continued into April and, after a dismal May, a strong June wiped out most of the losses of…
Vanguard research shows that liability-hedging strategies should focus on the portions of the liability that contribute the most to risk rather than hedging all components equally. Our analysis shows that hedging long-dated liabilities is expected to mitigate surplus risk to the greatest extent possible. Strategies should…
The excess returns associated with Value and Momentum result from convergent and divergent processes, respectively. Value stocks are systematically underpriced and gradually converge on their fair value over time. Momentum stocks start out fairly valued or slightly overvalued, and go on to become more overvalued in the short…
In the late stages of long bull markets, a popular question arises: What steps can an investor take to mitigate the impact of the inevitable large equity correction? However, hedging equity portfolios is notoriously difficult and expensive. We analyze the performance of different tools that investors could deploy. For…
Aswath Damodaran examines why, in a big year for initial public offerings (IPOs), it is a food company, not a tech company, that has managed to deliver the most dazzling post-IPO performance of any of the listings.
Major secular drivers could disrupt the global economy and financial markets over the next three to five years. We share our views on risks and opportunities ahead.
