The case for indexing equity portfolios has been thoroughly established in the financial literature and, more importantly, in real-world results. The merits of indexing with respect to fixed income investing, by contrast, is more of a gray area. A recent study by AQR finds that bond fund managers aren’t generating true alpha, but rather are simply farming the excess returns that come from their willingness to assume greater risk. In simplest terms, investing in equities is straightforward. Corporate stock, for the most part, comes in one format (common stock), and what to pay for it can be boiled down to…

The financial crisis that ripped through the global economy in 2008-2009 ended more than a decade ago, but one of its most confounding offspring persists: low (and in some cases negative) interest rates. Some have suggested this phenomenon is largely – if not wholly – due to the Federal Reserve’s truculence in managing monetary policy. If only the central bank would raise interest rates, so the story goes, the price of money would return to the “normal” state of affairs that presided before the Great Recession. If only it were that easy. The Fed sets interest rates, but the influence…

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, which reminds that investor perception on risk casts a long shadow on choices for asset allocation and, by extension, portfolio returns. Perhaps the most surprising result is that individual investors tend to think about risk is starkly different terms vs. financial advisors and institutional investors. Not surprisingly, these preferences have…

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 search of context, however, there’s an obvious place to start: comparing how various hedging strategies stack up. Campbell Harvey (a professor at Duke University) and several co-authors from the Man Group (one of the world’s biggest hedge fund groups) do some of the legwork by reviewing several equity market hedges…