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).
Asset allocation and portfolio construction are considered to be the main determinants of investment risk and returns for investors. The challenge for asset managers has always been finding an optimal asset allocation that meets both investors’ risk and reward requirements. Asset allocation methods have developed and…
The financial system as investors have known it for many decades is dealing with a new reality of negative interest rates and yields. Behind this phenomenon lie many factors and their consequences that are important for every financial professional to understand. In a levered financial system, central banks globally have had…
The credit markets are finally embracing quantitative investing and this paper provides an in-depth primer to quant credit. Readers will learn about the dynamics of systematic trading, the factors employed in quant models, and the future paths this rapidly-evolving strategy is likely to take.
CFA Institute Research Foundation introduces the first edition of the International Guide to Cost of Capital Summary Edition (IGCC) from Duff and Phelps/Kroll. This publication, which examines the important difference in risk characteristics of investing in various countries, is now a valuable part of the Research Foundation…
As inflation spiked in the second quarter of 2021, the debate about its transitory or permanent nature became more heated. Yet, as is sometimes the case with broad controversies, a lack of definition goes with a lack of comprehension.
For institutional asset owners, the vast majority of potential investment returns and risk will derive from the strategic portfolio allocation decision. This raises the important challenge of how best to construct and evaluate different strategic allocations, acknowledging that risk can be defined beyond a simple metric of…
Alternative risk premia (ARP) are designed to provide low-cost exposures to long-short risk premia often embedded in hedge fund returns. This article describes the performance of the ARP market in the form of bank-provided total return swaps, which are investable strategies that provide after-cost access to ARP. Over the…
The healthy appetite for commercial real estate (CRE) debt from investors around the world continues. Not a single investor wanted to reduce their exposure to debt, according to the 2020 INREV/ANREV/PREA survey covering CRE debt vehicles. It also reported that more investors were diversifying by using a combination of debt…
Global investors are often underweight Asian equities. Japan is the second largest country in the MSCI World Index after the U.S., but many have yet to consider a long-term active investment strategy for Japan and some have no exposure at all to Japan. Japan is the second largest developed market and fourth largest exporter…
In this paper, S&P Dow Jones Indices construct a multi-asset index for inflation protection. First, they look into forecasting inflation. Next, they analyse the inflation sensitivity of various asset classes. Then, they identify strategies for different inflation regimes. Finally, S&P Dow Jones Indices present…
As defined benefit plans contemplate the best path to their eventual 'end state', members of Wellington Management's LDI team update their liability-hedging research with a blend of traditional benchmark ideas and new opportunities to capitalise on changing market conditions and a broader investment universe.
In this paper, Amundi examines the materiality of ESG on country creditworthiness from a credit risk analysis viewpoint. To address this, they consider a granular set of 269 indicators within the three ESG pillars to determine what the sovereign bond market is pricing in. From this set of ESG metrics covering the 2015-2020…
This article is part of a comprehensive research project on liquidity risk in asset management, which can be divided into three dimensions. The first dimension covers the modeling of the liability liquidity risk (or funding liquidity), the second dimension is dedicated to the modeling of the asset liquidity risk (or market…
A major crisis is threatening the sustainability of pension systems across the globe. The first pillar of pension systems, which is made of public social security benefits and aims at providing a universal core of pension coverage to address basic consumption needs in retirement, is strongly impacted by rising demographic…
Developing or buying stock-level ESG ratings seems like a straightforward path to ESG implementation, but using stock-driven ESG implementations alone can invite steep trade-offs in return, risk, and ESG consistency at the portfolio level. In this paper, Intech demonstrates that targeting portfolio-level ESG results while…
Developing or buying stock-level ESG ratings seems like a straightforward path to ESG implementation, but using stock-driven ESG implementations alone can invite steep trade-offs in return, risk, and ESG consistency at the portfolio level. In this paper, Intech demonstrates that targeting portfolio-level ESG results while…
Constructing portfolios with thematic investments requires adequate risk management so that investors can assess by how much a given theme is exposed to traditional risk factors, sectors or styles, and how much alpha a given theme is likely to add to the portfolio.
Despite corporate pensions' funding ratios nudging higher, BlackRock believes some plans are taking on either too much risk or not enough to meet their targets. BlackRock compared dispersions across sectors and believe their findings can help plans determine the best path forward to seek to improve funding levels or maintain…
Large market drawdowns are a feature of historic market crises. Whether the Flash Crash, VIX Volmageddon, or the GFC, all are etched on investors' memories. This paper looks at several theories as to why these events took place and the lessons that can be learnt in future.
After several strong quarters for value stocks, the last few months have seen a sharp reversal in favor of growth. Understandably, this has led some investors to question whether value’s run is over and whether value investing makes sense as anything more than a tactical play. While the brevity of value’s resurgence has been…
