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Alternative Thinking

The Illusion of Active Fixed Income Diversification

We examine popular active fixed income categories and find that a persistent overweight to high yield credit explains the majority of fixed-income managers’ active returns. We then discuss some key implications for asset owners.

Alternative Thinking

The Role of Alternative Beta Premia

Alternative beta premia—dynamic long-short strategies—offer effective diversified sources of return. To us, the most useful classifications are hedge fund strategy premia and style premia, two complementary approaches

Alternative Thinking

Active and Passive Investing — The Long-Run Evidence

More careful thinking is needed to separate facts from fiction in the hotly contested debate between active and passive investing.

Alternative Thinking

Systematic vs. Discretionary

Systematic and fundamental investing approaches are not opposites. Both pursue the same objective and can be fundamentally-oriented. They can use similar inputs, but in different ways, to try to improve investment performance. Neither is necessarily better than the other.

Alternative Thinking

Ideas for a Low-Expected-Return World

There are different ways to achieve ambitious real return targets, but we think risk-balanced diversification across well-chosen return sources is the most reliable, strategic approach.

Alternative Thinking

Why Do Most Investors Choose Concentration Over Leverage?

Return-seeking investors must take risks—the question is which to take and to understand the tradeoffs involved. Most investors choose concentration risk, but we present arguments for a different approach.

Alternative Thinking

Tail-Hedging Strategies

Tail hedges are one way to potentially limit losses in adverse markets—but at a substantial cost. We discuss alternative approaches, such as trend-following strategies, which are more cost-effective and may offer portfolio protection in market downdrafts

Alternative Thinking

Style Premia / Bond Returns

We review how style premia have historically generated attractive long-run returns in virtually every place we have studied them, and may help reduce risk through better diversification. We then look at fixed income returns in different environments

Alternative Thinking

Strategic Portfolio Construction

When it comes to portfolio construction, many investors seek guidance on “putting it all together.” We discuss our systematic approach and examine how investor-specific beliefs and constraints can inform and interact with formal optimization methods.

Alternative Thinking

Capital Market Assumptions for Major Asset Classes

We update our medium-term expected returns for major asset classes and explore the historical accuracy of yield-based return estimates.