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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

Estimating Long Term Expected Returns

Diversification is underutilized in most institutional portfolios but may improve risk-adjusted returns, active returns and total returns more reliably than concentrated positions.

Alternative Thinking

Challenges of Incorporating Tactical Views

Tactical timing is inherently more difficult than it seems. We explore which types of tactical views may be worth taking.

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

Style Investing in Fixed Income

Systematic investing is often applied in equity markets but less so in fixed income. Here, we show that classic-style premia—typically applied in stock selection and equity country allocation—could have also work in fixed income markets.

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

Strategic Risk Allocation

We believe investors should broadly diversify and risk balance as a starting point to asset allocation, but perhaps then mildly overweight assets with high Sharpe ratios or good diversification benefits if they can identify these.

Alternative Thinking

Should Investors Worry About Rising Real Yields?

We document the response of various asset classes and strategies in historical episodes of sharply rising real bond yields—and found that investor portfolios tend to suffer less in bond-related tail events than in equity-related tail events.

Alternative Thinking

2016 Capital Market Assumptions for Major Asset Classes

We update our multi-year expected return assumptions for major stock and bond markets, and investigate expected returns for credits and commodities.