Diversify and Conquer

Managing risk is forever at the top of the list for informed investing, but the biggest challenge on this front arises from within. As Pogo famously said, “We have met the enemy and he is us.” So-called behavioral risk comes to mind after reading a recent survey of risk preferences, Continue Reading

Minimizing loss while pursuing return animates every investment strategy, but behind any and all efforts to actively sidestep red ink lurks a perennial question: Will it work? There are no easy answers for the simple reason that every investor’s risk tolerance, objective, time horizon, and other factors are unique. In Continue Reading

Financial researchers have assembled a small library of empirical support for explaining the existence of excess return over a relevant benchmark as the byproduct of one or more asset pricing anomalies. The factor zoo, as it’s derisively called, now ranges from the well-known value and small-cap risk premia to hundreds Continue Reading

The suggestion that investment portfolios can be quantitatively optimized became controversial almost as soon as Harry Markowitz launched the modern age of portfolio design in 1952, courtesy of his famous “Portfolio Selection” paper. Not because anyone disputes the goal of engineering a portfolio that maximizes return for a given level Continue Reading

Highlights The U.S. economy continues to grow, however, it has also shown some signs of a potential slowdown in growth. The stock market continues to rally despite headwinds from an ever-escalating trade war between the U.S. and China. Falling interest rates has the bond market considerably higher.  Meanwhile, the yield Continue Reading

The rise of factor-based investing over the last two decades has greatly impacted the investing landscape. From “explaining” active strategies to identifying sources of risk and return in financial markets with greater clarity, viewing asset pricing through a factor lens has been nothing short of a revelation for money management. Continue Reading

Few aspects of risk management come with higher stakes than estimating tail risk.[1] Just as a chain is no stronger than its weakest link, an investment strategy will be judged (at least in part) by the depth of its biggest losses. Unfortunately, tail risk is one of the toughest challenges Continue Reading

You may not be actively targeting macro factors in your portfolios, but it’s impossible to sidestep these elephants in the room.  Intended or not, we’re all running macro-factor portfolios to some extent. BlackRock recently analyzed nearly 10,000 portfolios managed by financial advisors using a macroeconomic lens and found “large common Continue Reading

As you undoubtedly know by now, the yield on the 10-year treasury fell lower than the yield on the 2-year treasury, albeit briefly, on August 14th.  If you follow the markets closely, you may have seen it coming.  After all, the spread between the 3-month and the 10-year treasury has Continue Reading

London Business School’s Elroy Dimson, an emeritus finance professor, memorably defined risk as the possibility that more things can happen than will happen. Picking up on this description, the late, great institutional investment adviser Peter Bernstein once explained that Dimson’s view of risk points investors on a particular analytical path. Continue Reading