Risk and Portfolio Construction

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).
  • CFA Institute Research Foundation

    Factor Investing and Asset Allocation (CFA Institute Research Foundation)

    Factor investing is as old as the hills. Yet it has only recently become a widespread practice. What is behind this sudden change in the investment management industry? What do analysts at firms that engage in factor investing do? What results might investors using these techniques expect? Here is a hugely important read to explore these questions.

    • Professional
    • Views: 2739
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  • Vanguard

    A framework for institutional portfolio construction (Vanguard)

    Typically, institutional investors around the world pursue one of four investment goals: absolute return, liability-driven investment, total return or principal protection. Generally, they choose from four different investment approaches: static tilts, traditional active management, market-capitalization exposures and alternative investments. Given the aforementioned potential ...

    • Professional
    • Views: 2612
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  • EDHEC-Risk Institute

    Multi-Dimensional Risk and Performance Analysis for Equity Portfolios (EDHEC)

    Multi-factor models are commonly used for risk analysis and performance attribution of equity portfolios. Equity portfolio managers are interested not only in assessing the impact of common factors, but also in understanding the impact of stock-specific attributes upon portfolio risk and performances. In this report, EDHEC-Risk Institute explores the challenge of consistent risk ...

  • MSCI

    How ESG Affects Equity Valuation, Risk, and Performance (MSCI, 2017)

    • 21 Dec 2017
    • Company: MSCI

    Many researchers have studied the relationship between companies with strong environmental, social and governance (ESG) characteristics and corporate financial performance. A major challenge has been to show that positive correlations — when produced — provide explanations for the behavior. As the classic phrase used by statisticians says, “correlation does not ...

    • Professional
    • Views: 1109
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  • BlackRock

    Enhance your skill: how active managers are using factor strategies (BlackRock, 2017)

    How are asset managers using factors to optimize active strategies?

    Factor investing continues to grow at a rapid pace, with almost $34 billion globally flowing into smart beta ETFs since the beginning of 2017.  Asset managers are taking notice, and many are already using factors to enhance their investment process. 

    Through the lens of three compelling case ...

    • Professional
    • Views: 1510
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  • Eaton Vance Management International

    Managing equity portfolio volatility by harnessing the volatility risk premium (Eaton Vance, May 2017)

    After eight years of stock market gains, many investors have tempered their return expectations and are focusing attention on how best to best achieve equity-like returns with less risk. One relatively new solution investors are exploring is the use of option-based strategies that seek to harness the Volatility Risk Premium.

    • Professional
    • Views: 1143
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  • Salient Partners

    The Free Lunch: The Value of Decoupling Diversification and Risk (Salient, 2016)

    The authors of this very interesting paper discuss why considering diversification and risk independently may help investors build more efficient portfolios. They argue that asset allocators should rethink the impact of low volatility diversifiers in higher risk portfolios. Some low vol asset classes (e.g. hedge funds) may primarily have a “de-risking” impact, but not a ...

  • The Divergence of High- and Low-Frequency estimation

    This paper is a collaborative effort between State Street Global Exchange and Windham Capital Management. It provides findings that are important to asset allocators looking at long-term asset allocation goals. High-frequency estimation, according to the paper, does not predict behavior reliably in the long-term, even if no sampling error is present. Investors should, when ...

  • Intech Investments

    How to Harness Volatility to Unlock Alpha (Intech Investments)

    The excess growth rate is an important source of long-term returns, and is always positive across all-long portfolios.

    When many stocks are combined in a portfolio that is regularly rebalanced, their interactions cause the portfolio to have a higher compound return than the weighted compound return of the stocks in the portfolio.

    Infrequently traded portfolios, such as market ...

  • CFA Institute

    What Free Lunch? The Costs of Overdiversification (CFA Institute, 2017)

    Institutional investors, charged with outperforming a policy benchmark, often allocate to external active managers in order to hit their return objective. The challenge is to do so without over-diversifying the plan. Hiring too many managers can significantly reduce active risk, leaving the plan with high fees and limited ability to outperform a policy benchmark. In this paper, we ...

    • Professional
    • Views: 1266
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  • S&P Dow Jones Indices

    A Practitioner’s Guide to Reading VIX® (S&P Dow Jones Indices, Dec 2017)

    Known as Wall Street’s “fear gauge,” VIX is followed by a multitude of market participants; its levels and trends have become part of the common language of market commentary. Unfortunately, the meaning of a given VIX level is frequently misunderstood. Our recent paper, “Reading VIX: Does VIX Predict Future Volatility?” provides market participants ...

  • QMA

    The Long and the Short of It: The Quant Shorting Advantage (QMA)

    • 01 Dec 2017
    • Company: QMA

    Active extension, equity long-short, and equity market neutral products can be attractive for investors at any particular time, given investors' varied investment objectives and needs. That said, each of the three categories of shorting-enabled products can help address distinct issues facing investors today. QMA’s paper describes how short selling can allow investors to ...

    • Introductory
    • Views: 1668
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  • Invesco (Europe)

    Risk & Reward: The Theory and Practice of Portfolio Insurance (Invesco, 2017)

    This issue of "Risk & Reward" examines the theory and practice of portfolio insurance: to achieve their goals, many investors are allocating towards more risky assets. In many cases, these investors can quickly find themselves in a tight spot if the risk budget is not expanded accordingly. This is where portfolio insurance can come into play. But, which strategy ...

    • Professional
    • Views: 1264
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  • FTSE Russell

    Factor Exposure and Portfolio Concentration (FTSE Russell, May 2017)

    Get an in-depth view of efficient multi-factor portfolio construction techniques, review the pros and cons of various approaches, and take a closer look at the benefits of tilting toward and away from single and multiple factors. An ideal read for asset owners who need a better understanding of factor tilting and want to compare outcomes for factor portfolio construction by looking ...

    • Professional
    • Views: 1330
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  • Wellington Management

    Do bonds diversify equity risk? (Wellington, Feb 2017)

    Our analysis suggests that the benefits of government bonds as diversifiers of equity risk have been weakening in recent years, as evidenced by higher correlations of government bonds to equity prices. Moreover, although bond yields have recently been rising, they remain very low by historical standards. This implies that the expected return hurdle for investing in alternative ...

    • Professional
    • Views: 1110
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