Practical Applications Summary In Diversification Benefits, Where Art Thou?, in the Winter 2019 edition of The Journal of Wealth Management, authors Sam Pittman, Amneet Singh, and Sangeetha Srinivasan, all of Russell Investments, consider how diversification may improve risk-adjusted returns (RARs) and what asset sectors may deliver those benefits. The authors examine whether exposure to some asset classes neutralizes the benefits from holding other asset classes, and how the returns from naive diversification match up to those from other approaches. Prompted by increasing investor skepticism over the advantages of diversification, the authors construct optimal fixed-weight portfolios with volatilities equal to those of three US-centric benchmark portfolios. They consider the historical benefits from diversifying into international equities, real assets, and below-investment-grade bonds. The authors draw from 15 different asset classes, to discern the regularity and magnitude of RAR improvement from diversification over five-year holding periods. They find that certain asset classes deliver diversification benefits more reliably than others; that some asset classes’ diversification benefits are dampened by the presence of other asset classes; and that portfolio returns from diversified holdings are subject to cyclicality that has longer wavelengths than the US business cycle. History implies the benefits of diversification will return, the authors note. TOPICS: Wealth management, retirement, portfolio construction
多元化收益的实际应用总结，你在哪里?在2019年冬季版的《财富管理杂志》(the Journal of Wealth Management)上，罗素投资公司(Russell Investments)的作者萨姆·皮特曼(Sam Pittman)、阿姆内特·辛格(Amneet Singh)和桑吉塔·斯里尼瓦桑(Sangeetha Srinivasan)考虑了多元化如何提高风险调整回报(RARs)，以及哪些资产行业可能带来这些好处。作者研究了持有某些资产类别是否会抵消持有其他资产类别的收益，以及单纯多样化的回报如何与其他方法的回报相匹配。由于投资者越来越怀疑多元化的优势，作者构建了最优的固定权重投资组合，其波动性等于三个以美国为中心的基准投资组合。他们考虑了将投资分散到国际股票、实物资产和低于投资级的债券上的历史收益。作者从15种不同的资产类别中提取数据，以辨别5年持有期多样化带来的RAR改善的规律性和幅度。他们发现，某些资产类别比其他资产类别更可靠地提供多样化收益;某些资产类别的多元化收益被其他资产类别的存在所抑制;多元化投资组合的回报受制于比美国商业周期更长的周期性。两位作者指出，历史表明，多元化的好处将会回归。主题:财富管理、退休、投资组合建设
{"title":"Practical Applications of Diversification Benefits, Where Art Thou?","authors":"S. Pittman, Amneet Singh, S. Srinivasan","doi":"10.3905/pa.8.2.388","DOIUrl":"https://doi.org/10.3905/pa.8.2.388","url":null,"abstract":"Practical Applications Summary In Diversification Benefits, Where Art Thou?, in the Winter 2019 edition of The Journal of Wealth Management, authors Sam Pittman, Amneet Singh, and Sangeetha Srinivasan, all of Russell Investments, consider how diversification may improve risk-adjusted returns (RARs) and what asset sectors may deliver those benefits. The authors examine whether exposure to some asset classes neutralizes the benefits from holding other asset classes, and how the returns from naive diversification match up to those from other approaches. Prompted by increasing investor skepticism over the advantages of diversification, the authors construct optimal fixed-weight portfolios with volatilities equal to those of three US-centric benchmark portfolios. They consider the historical benefits from diversifying into international equities, real assets, and below-investment-grade bonds. The authors draw from 15 different asset classes, to discern the regularity and magnitude of RAR improvement from diversification over five-year holding periods. They find that certain asset classes deliver diversification benefits more reliably than others; that some asset classes’ diversification benefits are dampened by the presence of other asset classes; and that portfolio returns from diversified holdings are subject to cyclicality that has longer wavelengths than the US business cycle. History implies the benefits of diversification will return, the authors note. TOPICS: Wealth management, retirement, portfolio construction","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-06-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127901288","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Practical Applications Summary In The Role of ABS CDOs in the Financial Crisis from the Summer 2019 issue of The Journal of Structured Finance, authors Larry Cordell (of the Federal Reserve Bank of Philadelphia), Greg Feldberg (of Yale University), and Danielle Sass (of the University of Illinois at Urbana-Champaign) explain how investment pools called asset-backed security collateralized debt obligations (ABS CDOs) became increasingly risky in the mid-2000s. The securities produced total writedowns of $410 billion, of which $325 billion were borne by AAA and super-senior securities. The first ABS CDOs ever issued were invested in a well-diversified mix of securities. But between 2005 and 2007, newly issued ABS CDOs were backed primarily by subordinate classes of MBSs backed by nonprime mortgage loans and derivatives of those MBSs. Financial firms believed these undiversified ABS CDOs were ultra-safe, but incurred massive losses when the subprime mortgage market collapsed. The authors explain the reasons for this false sense of security and the huge losses. They say a primary catalyst of the financial crisis was the enormous leverage that regulators had let firms build up, leaving them in danger of insolvency when their ABS CDOs failed. The authors then examine whether the industry has learned any lessons. TOPICS: Asset-backed securities (ABS), credit risk management, financial crises and financial market history
{"title":"Practical Applications of The Role of ABS CDOs in the Financial Crisis","authors":"Larry Cordell, G. Feldberg, Danielle Sass","doi":"10.3905/pa.8.2.387","DOIUrl":"https://doi.org/10.3905/pa.8.2.387","url":null,"abstract":"Practical Applications Summary In The Role of ABS CDOs in the Financial Crisis from the Summer 2019 issue of The Journal of Structured Finance, authors Larry Cordell (of the Federal Reserve Bank of Philadelphia), Greg Feldberg (of Yale University), and Danielle Sass (of the University of Illinois at Urbana-Champaign) explain how investment pools called asset-backed security collateralized debt obligations (ABS CDOs) became increasingly risky in the mid-2000s. The securities produced total writedowns of $410 billion, of which $325 billion were borne by AAA and super-senior securities. The first ABS CDOs ever issued were invested in a well-diversified mix of securities. But between 2005 and 2007, newly issued ABS CDOs were backed primarily by subordinate classes of MBSs backed by nonprime mortgage loans and derivatives of those MBSs. Financial firms believed these undiversified ABS CDOs were ultra-safe, but incurred massive losses when the subprime mortgage market collapsed. The authors explain the reasons for this false sense of security and the huge losses. They say a primary catalyst of the financial crisis was the enormous leverage that regulators had let firms build up, leaving them in danger of insolvency when their ABS CDOs failed. The authors then examine whether the industry has learned any lessons. TOPICS: Asset-backed securities (ABS), credit risk management, financial crises and financial market history","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-06-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117200050","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Practical Applications Summary In Multifamily Development: Can You Always Lease It Up?, from the 2019 Special Real Estate Issue of The Journal of Portfolio Management, authors Mark Fitzgerald, Chenchao Zang, and Will McIntosh (all of USAA Real Estate Company) seek to validate the conventional wisdom that investing in multifamily property development is safer than investing in the development of other types of properties, because multifamily properties tend to have short lease-up periods. The authors examine the distribution of lease-up periods for US multifamily developments from 2008 to 2018. They also examine how the length of a property’s lease-up period affects its rents.
{"title":"Practical Applications of Multifamily Development: Can You Always Lease It Up?","authors":"Mark Fitzgerald, Chenchao Zang, Willard Mcintosh","doi":"10.3905/pa.8.2.386","DOIUrl":"https://doi.org/10.3905/pa.8.2.386","url":null,"abstract":"Practical Applications Summary In Multifamily Development: Can You Always Lease It Up?, from the 2019 Special Real Estate Issue of The Journal of Portfolio Management, authors Mark Fitzgerald, Chenchao Zang, and Will McIntosh (all of USAA Real Estate Company) seek to validate the conventional wisdom that investing in multifamily property development is safer than investing in the development of other types of properties, because multifamily properties tend to have short lease-up periods. The authors examine the distribution of lease-up periods for US multifamily developments from 2008 to 2018. They also examine how the length of a property’s lease-up period affects its rents.","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-06-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127362751","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Practical Applications Summary In Medicare and Tax Planning for Higher-Income Households, from the Winter 2019 issue of The Journal of Wealth Management, authors William Reichenstein and William Meyer (both of Social Security Solutions, Inc. and Retiree, Inc. in Overland Park, KS) warn high-income retirees that they may owe more taxes than expected if their income exceeds certain levels. Most people know that income tax rates go up as income rises. However, many do not know that higher-income individuals pay higher Medicare premiums; each time their income exceeds one of several threshold levels set by the Affordable Care Act (ACA), their Medicare premium jumps. Since Medicare is a government program, these premium spikes are effectively tax rate increases. The authors offer strategies that take advantage of the current tax laws to help people avoid Medicare premium spikes and generally lower their lifetime income taxes. The authors’ key recommendations are to report life-changing events that reduce income, make Roth IRA conversions before tax rates are scheduled to increase in 2026, and satisfy charitable giving plans by making qualified charitable distributions from IRAs after age 70½. The authors say these measures can reduce retirees’ taxable income and thus reduce their lifetime income taxes and Medicare premiums.
{"title":"Practical Applications of Medicare and Tax Planning for Higher-Income Households","authors":"William R Reichenstein, W. Meyer","doi":"10.3905/pa.8.1.382","DOIUrl":"https://doi.org/10.3905/pa.8.1.382","url":null,"abstract":"Practical Applications Summary In Medicare and Tax Planning for Higher-Income Households, from the Winter 2019 issue of The Journal of Wealth Management, authors William Reichenstein and William Meyer (both of Social Security Solutions, Inc. and Retiree, Inc. in Overland Park, KS) warn high-income retirees that they may owe more taxes than expected if their income exceeds certain levels. Most people know that income tax rates go up as income rises. However, many do not know that higher-income individuals pay higher Medicare premiums; each time their income exceeds one of several threshold levels set by the Affordable Care Act (ACA), their Medicare premium jumps. Since Medicare is a government program, these premium spikes are effectively tax rate increases. The authors offer strategies that take advantage of the current tax laws to help people avoid Medicare premium spikes and generally lower their lifetime income taxes. The authors’ key recommendations are to report life-changing events that reduce income, make Roth IRA conversions before tax rates are scheduled to increase in 2026, and satisfy charitable giving plans by making qualified charitable distributions from IRAs after age 70½. The authors say these measures can reduce retirees’ taxable income and thus reduce their lifetime income taxes and Medicare premiums.","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-05-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129776442","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Practical Applications Summary In How Much Is Behavioral Advice Worth? in the Fall 2019 edition of The Journal of Wealth Management, Michael Pompian of Sunpointe Investments, LLC, quantitatively analyzes behavioral mistakes by investors through a case study of an affluent family that commits two common ones: loss aversion and mental accounting. The author explains how such fundamentally irrational behavior, often driven by fear and the temptation to limit losses by selling during sudden market downturns, can be detrimental to overall long-term returns. Behavioral finance—the study of how psychology affects investors, analysts, and the overall market—has gained relatively widespread acceptance over the past 20 years. Yet many investors and advisers remain vulnerable to psychological pitfalls and may be uninformed about how wealth management strategies might incorporate behavioral advice. Pompian uses his case study to emphasize the importance of recognizing psychological biases and to illustrate how they can drive mistakes that reduce investment returns. He asserts that advisers who understand behavioral finance can help investors, especially wealthier ones with more complex investment needs, avoid needless risk.
{"title":"Practical Applications of How Much Is Behavioral Advice Worth?","authors":"Michael M. Pompian","doi":"10.3905/pa.8.1.381","DOIUrl":"https://doi.org/10.3905/pa.8.1.381","url":null,"abstract":"Practical Applications Summary In How Much Is Behavioral Advice Worth? in the Fall 2019 edition of The Journal of Wealth Management, Michael Pompian of Sunpointe Investments, LLC, quantitatively analyzes behavioral mistakes by investors through a case study of an affluent family that commits two common ones: loss aversion and mental accounting. The author explains how such fundamentally irrational behavior, often driven by fear and the temptation to limit losses by selling during sudden market downturns, can be detrimental to overall long-term returns. Behavioral finance—the study of how psychology affects investors, analysts, and the overall market—has gained relatively widespread acceptance over the past 20 years. Yet many investors and advisers remain vulnerable to psychological pitfalls and may be uninformed about how wealth management strategies might incorporate behavioral advice. Pompian uses his case study to emphasize the importance of recognizing psychological biases and to illustrate how they can drive mistakes that reduce investment returns. He asserts that advisers who understand behavioral finance can help investors, especially wealthier ones with more complex investment needs, avoid needless risk.","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-04-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122570961","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Practical Applications Summary In The Price/Earnings Ratio, Growth, and Interest Rates: The Smartest BET, from the September 2019 edition of The Journal of Portfolio Management, Preston Estep of Battenkill LLC proposes a more elastic and encompassing break-even time (BET) metric as an alternative to the price/earnings (P/E) ratio for measuring investment value. The author defines BET as the number of years it takes for a company’s earnings to add up to its current stock price. Unlike the P/E ratio, his BET formula explicitly estimates future growth and discounted future earnings. According to the author, the resulting BET metric is superior to P/E and P/E-to-growth rate (PEG) ratios, in that BET allows for valuation comparisons of stocks with profoundly different growth rates and investor expectations. In advocating for his BET, the author calls into question some of the conventional wisdom about the relationship between yields and stock returns. His empirical analysis finds mostly random correlations in the relationships between valuation measures, including BET, and observed stock returns. But his findings support the need for stock valuations to include an assessment of a firm’s growth prospects—something he asserts the BET metric can readily do.
在2019年9月版的《投资组合管理杂志》(The Journal of Portfolio Management)上的《市盈率、增长率和利率:最聪明的押注》一书中，batattenkill LLC的普雷斯顿·埃step提出了一种更具弹性和包容性的盈益平衡时间(BET)指标，作为衡量投资价值的市盈率(P/E)的替代方案。作者将BET定义为公司收益加起来达到当前股价所需的年数。与市盈率不同，他的BET公式明确估算了未来的增长和未来的贴现收益。根据作者的说法，由此产生的BET指标优于市盈率和市盈率与增长率(PEG)比率，因为BET允许对具有截然不同增长率和投资者预期的股票进行估值比较。在支持他的赌注时，作者质疑了一些关于收益率和股票回报之间关系的传统智慧。他的实证分析发现，包括BET在内的估值指标与观察到的股票回报之间的关系大多是随机相关的。但他的研究结果支持了股票估值需要包括对公司增长前景的评估——他断言BET指标很容易做到这一点。
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Practical Applications Summary In The Unrealistic Optimism That Threatens Retirement Security, from the Fall 2019 issue of The Journal of Retirement, author Alfred Rappaport of Northwestern University details the retirement crisis facing Americans today. Fewer employers are offering lifetime pensions, and nearly half of American families have no retirement savings—but most Americans believe they are on track to a comfortable retirement. This unrealistic optimism comes from the fact that Americans underestimate their expenses in retirement while overestimating how much their investments will grow once they start saving. Investors often assume they will realize high rates of return in line with historical growth rates. However, they often sabotage their retirement nest egg’s potential by failing to reinvest dividends, and by investing when the market is high and selling when the market is low. Investors also often fail to factor in investment fees, inflation, and taxes. The author gives investors a reality check, providing tools that show how these factors cut into retirement savings over time. Financial advisors can use these tools to educate their clients and create retirement savings plans that are free of unrealistic optimism.
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Practical Applications Summary In Crowded Trades: Implications for Sector Rotation and Factor Timing, in the July 2019 edition of The Journal of Portfolio Management, authors William Kinlaw and David Turkington of State Street Associates and Mark Kritzman of Windham Capital Management discuss how investors can locate investment bubbles, determine whether these are expanding or deflating, and most profitably manage their exposure to bubbles’ run-ups and sell-offs. The authors propose two measures: (1) asset centrality to identify crowded trades (often the harbinger of bubbles) and (2) a complementary relative-value metric to distinguish between centrality during a bubble’s expansion and its deflation. Applied together, these measures can identify expansions and retractions of sector and factor market bubbles, the authors assert, to the advantage of investors wanting to trade these events. The authors back test the effectiveness of their measures by studying how they behaved during the tech and financial bubbles, among others. The authors conclude that, over the past 30 years, investors could have outperformed several equity markets by applying a sector-rotation strategy jointly incorporating these two measures, and also could have outperformed selected markets by using these measures to time exposure to such factors as size and volatility.
在2019年7月版的《投资组合管理杂志》(the Journal of Portfolio Management)上，道富投资公司(State Street Associates)的威廉•金劳(William Kinlaw)和大卫•特金顿(David Turkington)以及温德姆资本管理公司(Windham Capital Management)的马克•克里茨曼(Mark Kritzman)讨论了投资者如何定位投资泡沫，确定这些泡沫是在扩大还是在缩小，以及如何最有效地管理他们对泡沫上涨和抛售的敞口。作者提出了两个衡量标准:(1)资产中心性，以识别拥挤的交易(通常是泡沫的前兆);(2)一个互补的相对价值度量，以区分泡沫扩张和紧缩期间的中心性。作者断言，这些措施一起应用，可以识别行业和要素市场泡沫的扩张和收缩，从而有利于想要交易这些事件的投资者。作者通过研究这些措施在科技和金融泡沫等时期的表现来验证其有效性。作者得出的结论是，在过去的30年里，投资者可以通过应用结合这两种指标的行业轮换策略来优于几个股票市场，也可以通过使用这些指标来确定规模和波动性等因素的时间敞口，从而优于选定的市场。
{"title":"Practical Applications of Crowded Trades: Implications for Sector Rotation and Factor Timing","authors":"W. Kinlaw, M. Kritzman, D. Turkington","doi":"10.3905/pa.8.1.378","DOIUrl":"https://doi.org/10.3905/pa.8.1.378","url":null,"abstract":"Practical Applications Summary In Crowded Trades: Implications for Sector Rotation and Factor Timing, in the July 2019 edition of The Journal of Portfolio Management, authors William Kinlaw and David Turkington of State Street Associates and Mark Kritzman of Windham Capital Management discuss how investors can locate investment bubbles, determine whether these are expanding or deflating, and most profitably manage their exposure to bubbles’ run-ups and sell-offs. The authors propose two measures: (1) asset centrality to identify crowded trades (often the harbinger of bubbles) and (2) a complementary relative-value metric to distinguish between centrality during a bubble’s expansion and its deflation. Applied together, these measures can identify expansions and retractions of sector and factor market bubbles, the authors assert, to the advantage of investors wanting to trade these events. The authors back test the effectiveness of their measures by studying how they behaved during the tech and financial bubbles, among others. The authors conclude that, over the past 30 years, investors could have outperformed several equity markets by applying a sector-rotation strategy jointly incorporating these two measures, and also could have outperformed selected markets by using these measures to time exposure to such factors as size and volatility.","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-04-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129093209","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Practical Applications Summary In Active Indexing with ETFs: Disruption and Implications, from the Summer 2019 issue of The Journal of Index Investing, Joanne M. Hill of CboeVest discusses how exchange-traded funds (ETFs) have revolutionized the asset management, trading, and exchange businesses, and how investment professionals should respond. According to Hill, the proliferation, transparency, and cost/performance benefit of ETFs give investors greater choice, ease, and value. But at the same time, their wide availability and use of quantitative rules-based strategies are disrupting traditional asset management. Hill asserts that the strong relative performance of ETFs is causing investors to increasingly eschew traditional discretionary money management based on qualitative stock selection. Additionally, index firms—which provide the benchmarks for ETFs—are gaining influence in the development and marketing of investment products. Hill argues that the move toward rules-based, smart-beta investing means active management via ETF indexing will become more common as a trading strategy and in portfolio management, presenting a challenge to asset managers and financial markets. She advises ETF sponsors to apply new approaches to the content, marketing, and distribution of their products, and to train their sales forces to capably inform customers about all aspects of ETFs.
《指数投资杂志》(the Journal of Index Investing) 2019年夏季刊中，CboeVest的Joanne M. Hill讨论了交易所交易基金(etf)如何彻底改变了资产管理、交易和交易所业务，以及投资专业人士应如何应对。希尔认为，etf的扩散、透明度和成本/绩效优势为投资者提供了更多的选择、便利和价值。但与此同时，它们的广泛可用性和基于定量规则的策略的使用正在扰乱传统的资产管理。希尔断言，etf强劲的相对表现正导致投资者越来越多地避开基于定性选股的传统自由裁量资金管理。此外，为etf提供基准的指数公司在投资产品的开发和营销方面也越来越有影响力。Hill认为，转向以规则为基础的智能贝塔投资意味着，通过ETF指数进行主动管理将成为一种更普遍的交易策略和投资组合管理，对资产管理公司和金融市场构成挑战。她建议ETF发起人在产品内容、营销和分销方面采用新方法，并培训销售人员，使其能够向客户介绍ETF的各个方面。
{"title":"Practical Applications of Active Indexing with ETFs: Disruption and Implications","authors":"Joanne M. Hill","doi":"10.3905/pa.8.1.377","DOIUrl":"https://doi.org/10.3905/pa.8.1.377","url":null,"abstract":"Practical Applications Summary In Active Indexing with ETFs: Disruption and Implications, from the Summer 2019 issue of The Journal of Index Investing, Joanne M. Hill of CboeVest discusses how exchange-traded funds (ETFs) have revolutionized the asset management, trading, and exchange businesses, and how investment professionals should respond. According to Hill, the proliferation, transparency, and cost/performance benefit of ETFs give investors greater choice, ease, and value. But at the same time, their wide availability and use of quantitative rules-based strategies are disrupting traditional asset management. Hill asserts that the strong relative performance of ETFs is causing investors to increasingly eschew traditional discretionary money management based on qualitative stock selection. Additionally, index firms—which provide the benchmarks for ETFs—are gaining influence in the development and marketing of investment products. Hill argues that the move toward rules-based, smart-beta investing means active management via ETF indexing will become more common as a trading strategy and in portfolio management, presenting a challenge to asset managers and financial markets. She advises ETF sponsors to apply new approaches to the content, marketing, and distribution of their products, and to train their sales forces to capably inform customers about all aspects of ETFs.","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128838936","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Practical Applications Summary In Utilizing Low-Volatility Assets to Mitigate Sequence Risk in Retirement Investing, from the August 2019 issue of The Journal of Investing, Wei Ge of Parametric Portfolio Associates investigates the relationship between low-volatility assets and sequence risk in retirement investment portfolios. Ge finds that constructing a 60/40 portfolio in which the 60% growth asset allocation was invested in a low-volatility asset significantly reduced the uncertainty associated with retirement investment outcomes. This reduction in sequence risk was reflected in narrower final wealth ranges and reduced failure rates. Ge suggests that retirement plan managers incorporate low-volatility assets into the portfolios they manage in order to mitigate sequence risk.
{"title":"Practical Applications of Utilizing Low-Volatility Assets to Mitigate Sequence Risk in Retirement Investing","authors":"Weili Ge","doi":"10.3905/pa.8.1.376","DOIUrl":"https://doi.org/10.3905/pa.8.1.376","url":null,"abstract":"Practical Applications Summary In Utilizing Low-Volatility Assets to Mitigate Sequence Risk in Retirement Investing, from the August 2019 issue of The Journal of Investing, Wei Ge of Parametric Portfolio Associates investigates the relationship between low-volatility assets and sequence risk in retirement investment portfolios. Ge finds that constructing a 60/40 portfolio in which the 60% growth asset allocation was invested in a low-volatility asset significantly reduced the uncertainty associated with retirement investment outcomes. This reduction in sequence risk was reflected in narrower final wealth ranges and reduced failure rates. Ge suggests that retirement plan managers incorporate low-volatility assets into the portfolios they manage in order to mitigate sequence risk.","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-03-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132063256","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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