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).
Pension regulations in the Nordic countries and the Netherlands are similar to insurance regulation in the European Union. Solvency capital (SC) required for credit risk in corporate bond portfolios is close to its economic risk, while solvency capital for equity risk does not distinguish at all between low-risk and high-…
Among other things, this 50-page issue of Invesco's Risk & Reward report examines a variety of themes, for example: (i) a factor-based buy-and-hold strategy for bonds (ii) integrating low volatility style exposure into core equity factor investments (iii) equity factor timing, and more.
In this paper, Qontigo strategists look back at 2019 which was a remarkable year for equity benchmarks around the world. Both emerging and developed markets shared in the overperformance, with all components of risk falling for both markets. However, style factors saw mixed results, with few reporting outsized returns for…
Approximately 30%–40% of the variability in global individual equity securities can be explained by top-down country and industry memberships. Active management of global equity portfolios in the asset management industry, however, focuses almost exclusively on bottom-up security selection approaches, either minimizing or…
Among other things, this 50-page issue of Invesco's Risk & Reward report examines a variety of themes, for example: (i) a factor-based buy-and-hold strategy for bonds (ii) integrating low volatility style exposure into core equity factor investments (iii) equity factor timing, and more.
S&P Dow Jones Indices (S&P DJI) publishes a series of low volatility indices, offering market participants a perspective on the returns of lower volatility equities and forming the basis for index-linked products globally. Low volatility indices have typically outperformed their underlying broad market benchmarks on…
This paper explains the STOXX approach to its family of thematic indices, familiarizing readers with the data sources and the related index construction methodologies used to incorporate them, develop the concept and the rationale for each identified thematic, and analyze the resulting indices. This includes using basic…
Short Put Spreads (SPS) allow investors to limit their downside risk in exchange for limiting upside returns. The strike prices of the long and short put options that comprise a SPS determine these upside and downside return limits. This paper compares the performance of static and dynamic methods for selecting strike prices…
Traditional macroeconomic forecasts for the coming year are easy to come by, but harder to confidently exploit – in either direction. Instead, we examine the current relative behavior of stocks across several dimensions and place it within the appropriate historical context. In the process, we attempt to offer an integrated…
Traditional macroeconomic forecasts for the coming year are easy to come by, but harder to confidently exploit – in either direction. Instead, we examine the current relative behavior of stocks across several dimensions and place it within the appropriate historical context. In the process, we attempt to offer an integrated…
In the current low interest rate environment, institutional investors have specifically inquired about investing in gold and the potential hedging benefits against inflation or an economic slowdown. Existing investment research on gold-related assets has produced conflicting results about the role of gold in institutional…
Traditional defensive solutions suffer from negative exposure to other rewarded factors than the Low Volatility risk factor, concentration and strong exposure to fixed income risks. More importantly, they are not always low volatility and suffer from huge volatility peaks during times of market crisis. Scientific Beta offers…
This year’s market downturn has sparked renewed interest in defensive equity investing. This eBook offers a fresh look at this mature investment category: What is it? Why does it appear to deliver? What outcomes should you expect? What are some key issues to consider? What’s the case for using it?
This year’s market downturn has sparked renewed interest in defensive equity investing. This eBook offers a fresh look at this mature investment category: What is it? Why does it appear to deliver? What outcomes should you expect? What are some key issues to consider? What’s the case for using it?
While factor portfolios have outperformed over the long-term, they have also experienced strong cyclicality. Factor cyclicality can be understood in the context of factor fundamentals and their sensitivity to macroeconomic risks. This paper explores how investors can exploit these distinct macro sensitivities among factors,…
In this paper we consider how manager research and asset allocation can better connect. Most investment firms have distinct teams, systems and analytical approaches for conducting manager research and asset allocation. This separation can add risk and lead to sub-optimal portfolio decisions.
The STOXX Factor Index suite is comprised of five single-factor indices and a multifactor index engineered to deliver the excess returns associated with each factor using a diversified index of securities with carefully managed exposure, liquidity and risk characteristics. This paper provides a comprehensive description of…
This report explores alternative index approaches, minimum variance, low volatility factors, defensive multi-factor strategies and target exposure factors.
Private equity has been one of the fastest-growing asset classes over the last decade. For institutional investors with long time horizons, harvesting the illiquidity premium is an attractive opportunity in a world of stretched public equity valuations and negative interest rates. But understanding how to size the allocation…
Minimum variance strategies have gained significant traction especially since the global financial crisis. They aim at reducing or minimizing variance, i.e. the square of volatility as measured by standard deviation, or, in this case, price fluctuations of portfolio prices around their mean. As such, they are of much…
