The style box concept can help investors manage portfolio risk effectively. But thinking outside the box – considering opportunities across the spectrum, exploiting efficiencies from both beta and alpha perspectives, and using large-cap stocks selectively – may give investors a better chance to outperform the market.
The author makes the case for investment in transportation companies, citing increasing global trade, the outsourcing of increasingly complex supply chains to third parties, the rise of e-commerce, the fuel and environmental efficiency of railroads, and infrastructure upgrades of mass transit systems.
Valuation-tilted investment strategies offer many benefits of cap-weighting – broad diversification, low costs, transparency and modest turnover – plus the benefit of the value-premium phenomenon. And unlike traditional passive approaches, these strategies incorporate all stocks, differentiate across the valuation spectrum, and respond to changes i...
Real estate can play an important role in a well-diversified portfolio. Current valuations support allocations to private real estate vehicles versus public real estate vehicles. Furthermore, current risk-return expectations favor investments in opportunistic real estate over core real estate.
Concerns about excess government debt and inflation have increased interest in gold and raised its price. Gold is a commodity that behaves more like a currency, providing no investment return beyond price fluctuation. Gold's high price undermines its protective characteristics, making it more vulnerable to declines as monetary policy normalizes.
Investors buy gold out of fear that the economic and political infrastructure we count on when we buy stocks and bonds is degrading. And gold booms inevitably end with a bust. The better strategy may be to build a reasonably sized position in diversified commodities, including gold; play close attention to sound entry points; and rebalance religiou...
Investors face choices about how much to allocate across the liquidity spectrum of public equity, hedge funds, and private markets. The author outlines the benefits and costs in providing a framework for allocating across those three levels of liquidity when investing in equity markets for commodity producers.
The authors examine a range of topics, including the narrowing gap between returns on different asset classes, signs of the coming economic upturn, the strategy of alternating between risk-on and risk-off modes, inflation and economic crises around the world, performance of specific asset classes, and innovation as China's next growth driver.
Tail risk can be reduced by improving a portfolio's overall risk-return characteristics. Often this approach will blend several distinct strategies: broader diversification, volatility-based risk management, and drawdown control, perhaps combined with active management strategies such as managed futures or low-beta equities.
It will take years for state and local governments to return to pre-recession fiscal health. And yet, despite ongoing struggles, financial risks appear to be stabilizing. The mechanisms that state and city issuers have in place – particularly the balanced budget requirement, powers of taxation, and independent treasury management – are working as i...
Index-based global portfolios may offer a more efficient way to capture exposure to developed and emerging markets than having separate portfolios for each of the two. By consolidating these two market segments into a single integrated portfolio, investors benefit from lower portfolio turnover and reduced operating costs.
The second quarter played out close to expectations with weak market returns, few unanticipated shocks, and investor worries never escalating to panic. Expectations for capital market returns are now lower, although emerging markets offer growth for patient investors, real assets are a hedge against further monetary devaluation, and the environment...
Local currency emerging market debt funds have enjoyed robust asset growth in recent years as the investable universe has expanded and liquidity has sharply improved. This growing asset class provides diversification benefits and an attractive risk/reward profile for fixed-income and multi-asset portfolios.
Investment portfolios with diversified allocations exhibit beta spikes, which are commonly believed to be the result of increased portfolio correlation to U.S. equity. However, the fundamental mechanism driving beta to stress levels is the portfolio volatility ratio relative to equities, rather than the portfolio correlation itself.
When domestic safe-haven markets no longer seem to provide comfort, investors may want to consider diversifying by adopting a global approach to fixed income and currencies. Desirable countries to consider are those with better credit quality where higher official rates are already priced in and the currency has the potential to rally.