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).
Low-carbon and factor-based investing are two key trends in the global investment management industry. This paper investigates the impact of low-carbon screening on traditional market-cap-weighted portfolios and factor portfolios (quality, value, momentum, and low volatility) across seven Asian markets: Australia, China,…
Style factors have been shown to historically deliver superior risk-adjusted returns than passive capitalization weighted indexes and more persistent performance than traditional active management, making them a compelling alternative for investors. The benefits of style factors come with the cost of cyclicality, exposing…
Much evidence exists on unconditional factor premia across markets, yet less is known about their variation over time. Limited time series data, especially outside of U.S. equities, makes studying conditional returns challenging. We examine four prominent factors – value, momentum, carry, and defensive – using a century of…
In this blog post, Peter Van Dooijeweert of Man Group presents four approaches – and potential hedging solutions – that can be used in evaluating private equity risk using public securities.
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…
Among other things, this 32-page issue of Risk & Reward examines how to take a factor-based approach to diversifying oil exposure. Oil investors, fixed income investors and sovereign wealth funds are the main focus of this issue.
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…
Several major equity benchmark providers maintain rules-based defensive equity portfolios they call indexes – but they shouldn’t be confused with their cap-weighted counterparts. We take a closer look at what options exist and how they differ, their viability as passive investments and how they might be improved, and how to…
Several major equity benchmark providers maintain rules-based defensive equity portfolios they call indexes – but they shouldn’t be confused with their cap-weighted counterparts. We take a closer look at what options exist and how they differ, their viability as passive investments and how they might be improved, and how to…
This study explores which asset classes add value to a traditional portfolio of stocks, bonds and cash. Next, we determine the optimal weights of all asset classes in the optimal portfolio. This study adds to the literature by distinguishing ten different investment categories simultaneously in a mean-variance analysis as…
Strategists at BlackRock have seen an ongoing shift to index strategies amongst investors, with both distributors and end investors changing their perception of the role and value of index vehicles. They reflect on why indexing matters.
Among other things, this 32-page issue of Risk & Reward examines how to take a factor-based approach to diversifying oil exposure. Oil investors, fixed income investors and sovereign wealth funds are the main focus of this issue.
Global equity indexes finished last quarter in positive territory despite a steep fall in May. Looking forward, however, the Intech Equity Market Stress MonitorTM suggests caution. Strategies with lower beta exposure offer the potential for higher portfolio efficiency and reduced systematic risk right now. Learn more in our…
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…
This report 24-page by Wells Fargo Investment Institute discusses the organisation's methodology for constructing capital market assumptions (CMAs) of the various asset classes as well as the long-term factors that may affect the overall investment-strategy process. It is intended to accompany its monthly Asset Allocation…
Last year’s robust inflows into ETFs across retail and institutional channels occurred amid volatile market conditions and the deep sell-off in global equity markets. However, the data suggests last year’s robust growth in ETF investments by U.S. institutions occurred not in spite of these factors, but rather because of them…
For the first time in the nine years we have conducted our institutional usage and adoption studies, more U.S. institutions are investing in equity ETFs than in individual stocks. Three-quarters of respondents in this year’s study invest in equity ETFs, compared with 59% investing in individual stocks. When the sample is…
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…
