Practical Applications Summary In Adaptive Portfolios and the Power of Diversification, in the August 2019 edition of The Journal of Investing, Jürgen Vandenbroucke of KBC Asset Management NV describes a discretionary method for portfolio management that addresses investor emotions at the individual, investment-product, and portfolio levels. By adding “a behavioral component to the prevailing risk-based paradigm,” he subscribes to the adaptive market hypothesis (Lo 2004), which concerns how individuals’ emotions may negate rational investment decision-making. Vandenbroucke highlights the common consequences of emotion-driven investing. He then proposes remedies in the areas of investor profiling, product positioning, and portfolio construction. He distinguishes between investor attitudes toward “risk,” as measured by the variance of returns, and “loss,” as measured in terms of an investment’s potential gain versus its potential losses. This amounts to operating beyond the confines of a classical mean–variance framework and considering the entire shape of the distribution of future returns (which may be non-normal). He differentiates among investment products along spectrums of mean versus variance and upside potential versus downside hazard. Finally, he shows how to weight selected investment products to align investors’ loss aversion with a balance between upside potential and downside risk in a portfolio. This weighting allows a portfolio to inhabit an investor’s “comfort zone” by adjusting its allocations as market conditions change. A customer-centered adaptive portfolio of this kind enhances diversification and can temper emotionally driven trading activity that would otherwise be a drag on performance. TOPICS: Wealth management, portfolio construction, statistical methods
{"title":"Practical Applications of Adaptive Portfolios and the Power of Diversification","authors":"J. Vandenbroucke","doi":"10.3905/pa.8.2.399","DOIUrl":"https://doi.org/10.3905/pa.8.2.399","url":null,"abstract":"Practical Applications Summary In Adaptive Portfolios and the Power of Diversification, in the August 2019 edition of The Journal of Investing, Jürgen Vandenbroucke of KBC Asset Management NV describes a discretionary method for portfolio management that addresses investor emotions at the individual, investment-product, and portfolio levels. By adding “a behavioral component to the prevailing risk-based paradigm,” he subscribes to the adaptive market hypothesis (Lo 2004), which concerns how individuals’ emotions may negate rational investment decision-making. Vandenbroucke highlights the common consequences of emotion-driven investing. He then proposes remedies in the areas of investor profiling, product positioning, and portfolio construction. He distinguishes between investor attitudes toward “risk,” as measured by the variance of returns, and “loss,” as measured in terms of an investment’s potential gain versus its potential losses. This amounts to operating beyond the confines of a classical mean–variance framework and considering the entire shape of the distribution of future returns (which may be non-normal). He differentiates among investment products along spectrums of mean versus variance and upside potential versus downside hazard. Finally, he shows how to weight selected investment products to align investors’ loss aversion with a balance between upside potential and downside risk in a portfolio. This weighting allows a portfolio to inhabit an investor’s “comfort zone” by adjusting its allocations as market conditions change. A customer-centered adaptive portfolio of this kind enhances diversification and can temper emotionally driven trading activity that would otherwise be a drag on performance. TOPICS: Wealth management, portfolio construction, statistical methods","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-09-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131780967","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 Impact Investing 2.0—Not Just for Do-Gooders Anymore, from the 2020 ESG special issue of The Journal of Investing, Diana Lieberman of DL Investment Consulting reviews the meaning and development of impact investing, including its two discrete evolutionary paths: philanthropy and investment. She describes how new investment prospects emerge from impact-oriented trends, in which “the drivers of the impact are integrated into creating the above-market return.” She calls this “impact investing 2.0.” Lieberman outlines spectrums comprising a range of return and impact objectives. Combined, the spectrums illustrate the traditional thinking about impact investing, which assumes an inevitable trade-off between the two objectives, and the new thinking about impact investing, to generate above-market returns through investment in the impact objective itself. Shrewd investors are realizing that incorporating ethical and environmental, social, and governance (ESG) concerns into investment analyses can enhance returns, she notes—even as other investors fail to understand that social and economic shifts have future implications, and that creating a more sustainable world has intrinsic investment merit. This creates investment potential for those who grasp such profundities, and for investors who selectively incorporate impact elements into their due diligence and investment monitoring. TOPICS: ESG investing, portfolio theory, portfolio construction
{"title":"Practical Applications of Impact Investing 2.0—Not Just for Do-Gooders Anymore","authors":"D. Lieberman","doi":"10.3905/pa.8.2.398","DOIUrl":"https://doi.org/10.3905/pa.8.2.398","url":null,"abstract":"Practical Applications Summary In Impact Investing 2.0—Not Just for Do-Gooders Anymore, from the 2020 ESG special issue of The Journal of Investing, Diana Lieberman of DL Investment Consulting reviews the meaning and development of impact investing, including its two discrete evolutionary paths: philanthropy and investment. She describes how new investment prospects emerge from impact-oriented trends, in which “the drivers of the impact are integrated into creating the above-market return.” She calls this “impact investing 2.0.” Lieberman outlines spectrums comprising a range of return and impact objectives. Combined, the spectrums illustrate the traditional thinking about impact investing, which assumes an inevitable trade-off between the two objectives, and the new thinking about impact investing, to generate above-market returns through investment in the impact objective itself. Shrewd investors are realizing that incorporating ethical and environmental, social, and governance (ESG) concerns into investment analyses can enhance returns, she notes—even as other investors fail to understand that social and economic shifts have future implications, and that creating a more sustainable world has intrinsic investment merit. This creates investment potential for those who grasp such profundities, and for investors who selectively incorporate impact elements into their due diligence and investment monitoring. TOPICS: ESG investing, portfolio theory, portfolio construction","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-08-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117304595","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 Using the Volatility Risk Premium to Mitigate the Next Financial Crisis, from the Winter 2019 issue of the The Journal of Wealth Management, author Wei Ge (of Parametric Portfolio Associates LLC in Minneapolis) offers a new way to protect investment portfolios. The stock market has experienced a 10-year boom, and some investors expect a major bust soon. Ge suggests such investors adopt a volatility risk premium (VRP) strategy of writing options. One aspect of such a strategy involves writing put options. Writing puts with strike prices below current market prices lets VRP investors make money up front—and also limits their potential losses, since the stock prices must drop below the strike prices before the option writer must pay for an option holder’s shares. Ge demonstrates that portfolios using this strategy can perform well over the long term and would have lost far less than a pure stock portfolio during the financial crises between 1998 and 2011. Therefore, investors may wish to consider adopting such a strategy to protect themselves from losses. TOPICS: Analysis of individual factors/risk premia, financial crises and financial market history, performance measurement
{"title":"Practical Applications of Using the Volatility Risk Premium to Mitigate the Next Financial Crisis","authors":"Weili Ge","doi":"10.3905/pa.8.2.397","DOIUrl":"https://doi.org/10.3905/pa.8.2.397","url":null,"abstract":"Practical Applications Summary In Using the Volatility Risk Premium to Mitigate the Next Financial Crisis, from the Winter 2019 issue of the The Journal of Wealth Management, author Wei Ge (of Parametric Portfolio Associates LLC in Minneapolis) offers a new way to protect investment portfolios. The stock market has experienced a 10-year boom, and some investors expect a major bust soon. Ge suggests such investors adopt a volatility risk premium (VRP) strategy of writing options. One aspect of such a strategy involves writing put options. Writing puts with strike prices below current market prices lets VRP investors make money up front—and also limits their potential losses, since the stock prices must drop below the strike prices before the option writer must pay for an option holder’s shares. Ge demonstrates that portfolios using this strategy can perform well over the long term and would have lost far less than a pure stock portfolio during the financial crises between 1998 and 2011. Therefore, investors may wish to consider adopting such a strategy to protect themselves from losses. TOPICS: Analysis of individual factors/risk premia, financial crises and financial market history, performance measurement","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-08-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126962935","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}
P. Hagelstein, I. Lackner, J. Otto, A. Perona, R. Piziak
Practical Applications Summary In Markowitz Portfolios with Graham Bands in the Accumulation Phase, from the Winter 2019 issue of The Journal of Wealth Management, Paul Hagelstein, Isabella Lackner, James Otto, Austin Perona, and Robert Piziak, all of Baylor University, investigate the historical real returns of two types of portfolios: Markowitz portfolios and Markowitz portfolios with Graham bands. They find that historically, rebalancing never occurred more than once per 30-year period, and that rebalancing more often hurt than helped investor returns. Additionally, they find that investors never rebalanced from bonds into stocks in any of the 30-year periods. The authors conclude by suggesting that investors consider placing their bond allocations into less-liquid investment vehicles, such as the TIAA Traditional annuity, in order to generate greater returns. TOPICS: Portfolio theory, portfolio construction, wealth management
{"title":"Practical Applications of Markowitz Portfolios with Graham Bands in the Accumulation Phase","authors":"P. Hagelstein, I. Lackner, J. Otto, A. Perona, R. Piziak","doi":"10.3905/pa.8.2.396","DOIUrl":"https://doi.org/10.3905/pa.8.2.396","url":null,"abstract":"Practical Applications Summary In Markowitz Portfolios with Graham Bands in the Accumulation Phase, from the Winter 2019 issue of The Journal of Wealth Management, Paul Hagelstein, Isabella Lackner, James Otto, Austin Perona, and Robert Piziak, all of Baylor University, investigate the historical real returns of two types of portfolios: Markowitz portfolios and Markowitz portfolios with Graham bands. They find that historically, rebalancing never occurred more than once per 30-year period, and that rebalancing more often hurt than helped investor returns. Additionally, they find that investors never rebalanced from bonds into stocks in any of the 30-year periods. The authors conclude by suggesting that investors consider placing their bond allocations into less-liquid investment vehicles, such as the TIAA Traditional annuity, in order to generate greater returns. TOPICS: Portfolio theory, portfolio construction, wealth management","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-08-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116010034","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 Smart Beta: The Good, the Bad, and the Muddy, in the March 2020 edition of The Journal of Portfolio Management, James White and Victor Haghani, both of Elm Partners, discuss smart beta factor investing. They debate the merits of the most common smart beta approach: selecting securities based on factors for long-only equity portfolios. They ponder whether markets harbor enough specific risk-sensitivity differences among investors and/or pricing inefficiencies to make smart beta investing worthwhile for the typical investor, after accounting for the extra fees associated with such strategies. The authors observe that portfolios with factor exposure have generally offered higher risk-adjusted returns than market-cap-weighted indexes. But they caution that factor investing may not be all that it appears, noting that to the extent attractive returns arise from inefficiencies, these anomalies tend to dissipate over time. They suggest that if the explanation for returns is compensation for bearing undue risks, it is unlikely, though not impossible, that most investors would want to bear concentrated exposure to that risk beyond what they get by holding the market portfolio. Additionally, factor research in general is compromised by data issues such as periodic regime changes and complex relationships among data categories. With all this in mind, the authors suggest that for most investors, holding a cap-weighted portfolio is the preferred approach. TOPICS: Style investing, portfolio management/multi-asset allocation
{"title":"Practical Applications of Smart Beta: The Good, the Bad, and the Muddy","authors":"James White, Victor Haghani","doi":"10.3905/pa.8.2.394","DOIUrl":"https://doi.org/10.3905/pa.8.2.394","url":null,"abstract":"Practical Applications Summary In Smart Beta: The Good, the Bad, and the Muddy, in the March 2020 edition of The Journal of Portfolio Management, James White and Victor Haghani, both of Elm Partners, discuss smart beta factor investing. They debate the merits of the most common smart beta approach: selecting securities based on factors for long-only equity portfolios. They ponder whether markets harbor enough specific risk-sensitivity differences among investors and/or pricing inefficiencies to make smart beta investing worthwhile for the typical investor, after accounting for the extra fees associated with such strategies. The authors observe that portfolios with factor exposure have generally offered higher risk-adjusted returns than market-cap-weighted indexes. But they caution that factor investing may not be all that it appears, noting that to the extent attractive returns arise from inefficiencies, these anomalies tend to dissipate over time. They suggest that if the explanation for returns is compensation for bearing undue risks, it is unlikely, though not impossible, that most investors would want to bear concentrated exposure to that risk beyond what they get by holding the market portfolio. Additionally, factor research in general is compromised by data issues such as periodic regime changes and complex relationships among data categories. With all this in mind, the authors suggest that for most investors, holding a cap-weighted portfolio is the preferred approach. TOPICS: Style investing, portfolio management/multi-asset allocation","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-07-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124203969","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 ESG Controversies and Their Impact on Performance, in the December 2019 issue of The Journal of Investing, Carmine de Franco of Ossiam analyzes how controversies over environmental, social, and governance (ESG) issues affect stock performance. De Franco derives an aggregated controversy indicator from a subset of ESG markers, then uses it to categorize stocks as no, low, moderate, or high controversy. He constructs stock portfolios with equivalent controversy levels for Western Europe, the United States, and the Asia-Pacific region. His research reveals that in Europe and the United States, stocks of highly controversial companies significantly underperform both selected benchmarks and stocks of companies with little or no ESG-related controversy. In Asia-Pacific, however, stock markets appear to be less sensitive to such controversy. To probe this geographical divergence, De Franco plots performance along a “controversy effect curve” (CEC) to estimate average excess return of those stocks whose controversy levels change. Some pronounced patterns emerge. In Western Europe, unexpected deterioration in controversy levels is associated with negative returns. In the United States, regular downgrades of a company’s ESG profile degrade stock performance. Asia-Pacific is again an outlier, with no clear pattern between changes in ESG controversy levels and stock performance. TOPICS: Portfolio theory, portfolio construction, ESG investing
ESG争议及其对业绩影响的实际应用总结，在2019年12月的《投资杂志》上，Ossiam的Carmine de Franco分析了环境、社会和治理(ESG)问题的争议如何影响股票表现。De Franco从ESG指标的子集中得出一个综合争议指标，然后用它来对股票进行无争议、低争议、中等争议和高争议的分类。他为西欧、美国和亚太地区构建了具有同等争议程度的股票投资组合。他的研究表明，在欧洲和美国，备受争议的公司的股票表现明显低于选定的基准，以及很少或没有esg相关争议的公司的股票。然而，在亚太地区，股市似乎对此类争议不那么敏感。为了探究这种地域差异，De Franco沿着“争议效应曲线”(CEC)绘制了业绩图，以估计争议水平发生变化的股票的平均超额回报。出现了一些明显的模式。在西欧，争议程度的意外恶化与负回报有关。在美国，定期下调一家公司的ESG评级会降低其股票表现。亚太地区又是一个例外，ESG争议程度的变化与股票表现之间没有明显的规律。主题:投资组合理论、投资组合构建、ESG投资
{"title":"Practical Applications of ESG Controversies and Their Impact on Performance","authors":"Carmine de Franco","doi":"10.3905/pa.8.2.393","DOIUrl":"https://doi.org/10.3905/pa.8.2.393","url":null,"abstract":"Practical Applications Summary In ESG Controversies and Their Impact on Performance, in the December 2019 issue of The Journal of Investing, Carmine de Franco of Ossiam analyzes how controversies over environmental, social, and governance (ESG) issues affect stock performance. De Franco derives an aggregated controversy indicator from a subset of ESG markers, then uses it to categorize stocks as no, low, moderate, or high controversy. He constructs stock portfolios with equivalent controversy levels for Western Europe, the United States, and the Asia-Pacific region. His research reveals that in Europe and the United States, stocks of highly controversial companies significantly underperform both selected benchmarks and stocks of companies with little or no ESG-related controversy. In Asia-Pacific, however, stock markets appear to be less sensitive to such controversy. To probe this geographical divergence, De Franco plots performance along a “controversy effect curve” (CEC) to estimate average excess return of those stocks whose controversy levels change. Some pronounced patterns emerge. In Western Europe, unexpected deterioration in controversy levels is associated with negative returns. In the United States, regular downgrades of a company’s ESG profile degrade stock performance. Asia-Pacific is again an outlier, with no clear pattern between changes in ESG controversy levels and stock performance. TOPICS: Portfolio theory, portfolio construction, ESG investing","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-07-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127802243","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 Alternative Risk Premia: Is the Selection Process Important?, from the Summer 2019 issue of The Journal of Wealth Management, authors Francesc Naya (of BDK Financial Group in Lisbon, Portugal) and Nils S. Tuchschmid (of the University of Applied Sciences and Arts, in Fribourg, Switzerland) examine the necessity of having a due diligence process for alternative risk premia decisions. The authors first analyze alternative risk premia indexes in categories used by providers to determine differences in performance. They find significant degrees of heterogeneity in most indexes that a priori capture the same risk premium, indicating that results are highly provider-dependent, and thus that the selection of a provider is important. The authors also determine the presence and extent of overfitting bias in the alternative risk premia industry. TOPICS: Analysis of individual factors/risk premia, performance measurement, simulations
另类风险溢价的实际应用总结:选择过程重要吗?，作者Francesc Naya(来自葡萄牙里斯本的BDK金融集团)和Nils S. Tuchschmid(来自瑞士弗里堡的应用科学与艺术大学)研究了对替代风险溢价决策进行尽职调查的必要性。作者首先分析了供应商使用的类别中的替代风险溢价指数，以确定绩效差异。他们发现，在先验地获得相同风险溢价的大多数指数中，存在显著程度的异质性，这表明结果高度依赖于供应商，因此供应商的选择很重要。作者还确定了替代风险溢价行业中过度拟合偏差的存在和程度。主题:个体因素/风险溢价分析，绩效评估，模拟
{"title":"Practical Applications of Alternative Risk Premia: Is the Selection Process Important?","authors":"Francesc Naya, Nils S. Tuchschmid","doi":"10.3905/pa.8.2.392","DOIUrl":"https://doi.org/10.3905/pa.8.2.392","url":null,"abstract":"Practical Applications Summary In Alternative Risk Premia: Is the Selection Process Important?, from the Summer 2019 issue of The Journal of Wealth Management, authors Francesc Naya (of BDK Financial Group in Lisbon, Portugal) and Nils S. Tuchschmid (of the University of Applied Sciences and Arts, in Fribourg, Switzerland) examine the necessity of having a due diligence process for alternative risk premia decisions. The authors first analyze alternative risk premia indexes in categories used by providers to determine differences in performance. They find significant degrees of heterogeneity in most indexes that a priori capture the same risk premium, indicating that results are highly provider-dependent, and thus that the selection of a provider is important. The authors also determine the presence and extent of overfitting bias in the alternative risk premia industry. TOPICS: Analysis of individual factors/risk premia, performance measurement, simulations","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-07-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125688183","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 Capacity of Factor Strategies, from the September 2019 issue of The Journal of Portfolio Management, David Blitz and Thom Marchesini, both of Robeco Asset Management, examine factor-investing strategies and the capacities needed to process these increasingly popular approaches. Focusing their research on the low-volatility factor, the authors conduct a simulation alongside current minimum-volatility indexes, with the simulation’s trades occurring more frequently and over a longer period than is currently standard with factor indexes. The simulation shows no performance loss and considerable capacity expansion over standard minimum-volatility indexes. The authors also conduct simulations with quality and value factor indexes, with similar results. The authors surmise that index-based factor strategies are currently subject to pronounced capacity constraints because most trades occur on just a few active days of rebalancing each year. This leads to liquidity squeezes and ultimately compromised returns. To add capacity and ameliorate these conditions, the authors advise implementation of more sophisticated factor-investing strategies, including more frequent rebalancing. They suggest spreading out trades over a larger number of days during the year to continuously leverage latent market liquidity. Active, frequent trading in smaller amounts, the authors advise, promotes greater capacity than more passive factor-index replication strategies that make infrequent but much larger trades. TOPICS: Factor-based models, style investing, analysis of individual factors/risk premia
{"title":"Practical Applications of The Capacity of Factor Strategies","authors":"David Blitz, Thom Marchesini","doi":"10.3905/pa.8.2.391","DOIUrl":"https://doi.org/10.3905/pa.8.2.391","url":null,"abstract":"Practical Applications Summary In The Capacity of Factor Strategies, from the September 2019 issue of The Journal of Portfolio Management, David Blitz and Thom Marchesini, both of Robeco Asset Management, examine factor-investing strategies and the capacities needed to process these increasingly popular approaches. Focusing their research on the low-volatility factor, the authors conduct a simulation alongside current minimum-volatility indexes, with the simulation’s trades occurring more frequently and over a longer period than is currently standard with factor indexes. The simulation shows no performance loss and considerable capacity expansion over standard minimum-volatility indexes. The authors also conduct simulations with quality and value factor indexes, with similar results. The authors surmise that index-based factor strategies are currently subject to pronounced capacity constraints because most trades occur on just a few active days of rebalancing each year. This leads to liquidity squeezes and ultimately compromised returns. To add capacity and ameliorate these conditions, the authors advise implementation of more sophisticated factor-investing strategies, including more frequent rebalancing. They suggest spreading out trades over a larger number of days during the year to continuously leverage latent market liquidity. Active, frequent trading in smaller amounts, the authors advise, promotes greater capacity than more passive factor-index replication strategies that make infrequent but much larger trades. TOPICS: Factor-based models, style investing, analysis of individual factors/risk premia","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-07-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121973988","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 International Equity Indexes and Public Trust, which appeared in the Summer 2018 issue of The Journal of Investing, Lars Kaiser (University of Liechtenstein) investigates the relationship between public trust and international capital flows. He examines whether public trust could serve as an alternative-weighting scheme for international equity portfolios that are traditionally weighted according to gross domestic product (GDP) or market capitalization. He finds that trust-weighted schemes perform similarly to equal-weighted schemes in terms of diversification and returns, but display lower volatility. These findings are particularly robust among emerging markets. Additionally, Kaiser finds an asymmetry between foreign and local public trust in different countries and argues that investors often make decisions based on this informational asymmetry. Overall, he suggests that public trust provides valuable additional information to investors with allocations to international equity, particularly when those allocations are in emerging markets. TOPICS: Portfolio construction, developed
Lars Kaiser(列支敦士登大学)在《投资杂志》(the Journal of Investing) 2018年夏季刊的《国际股票指数与公众信任的实际应用总结》中，研究了公众信任与国际资本流动之间的关系。他研究了公众信任是否可以作为传统上根据国内生产总值(GDP)或市值加权的国际股票投资组合的一种替代加权方案。他发现，在多样化和回报方面，信托加权计划的表现与等加权计划相似，但表现出更低的波动性。这些发现在新兴市场尤为明显。此外，Kaiser还发现不同国家的外国和当地公众信任存在不对称，并认为投资者往往基于这种信息不对称做出决策。总体而言，他认为公众信任为配置国际股票的投资者提供了宝贵的额外信息，尤其是当这些配置在新兴市场时。主题:作品集构建，已开发
{"title":"Practical Applications of International Equity Indexes and Public Trust","authors":"Lars Kaiser","doi":"10.3905/pa.8.2.390","DOIUrl":"https://doi.org/10.3905/pa.8.2.390","url":null,"abstract":"Practical Applications Summary In International Equity Indexes and Public Trust, which appeared in the Summer 2018 issue of The Journal of Investing, Lars Kaiser (University of Liechtenstein) investigates the relationship between public trust and international capital flows. He examines whether public trust could serve as an alternative-weighting scheme for international equity portfolios that are traditionally weighted according to gross domestic product (GDP) or market capitalization. He finds that trust-weighted schemes perform similarly to equal-weighted schemes in terms of diversification and returns, but display lower volatility. These findings are particularly robust among emerging markets. Additionally, Kaiser finds an asymmetry between foreign and local public trust in different countries and argues that investors often make decisions based on this informational asymmetry. Overall, he suggests that public trust provides valuable additional information to investors with allocations to international equity, particularly when those allocations are in emerging markets. TOPICS: Portfolio construction, developed","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115325785","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 International Equity Investing: Is Flexibility the New Diversification?, from the September 2019 issue of The Journal of Portfolio Management, Sunder Ramkumar, Michelle Black, and Vincent Fu (all of Capital Group) investigate the effects of geographical restrictions on US mutual fund performance. They find that, in the face of increased correlation of equities around the world, investment strategies with fewer geographical restrictions perform better than traditional international portfolio allocations designed to offset risk in US domestic investments. The authors attribute this enhanced performance to a wider opportunity and greater flexibility among managers. “We argue that the case for international investing increasingly rests on the return potential from investing in a broad set of companies and that flexibility to invest across borders is key to capturing this value,” they write. TOPICS: Emerging markets, mutual funds/passive investing/indexing
{"title":"Practical Applications of International Equity Investing: International Equity Investing: Is Flexibility the New Diversification?","authors":"S. Ramkumar, Michelle J. Black, Vincent C. Fu","doi":"10.3905/pa.8.2.389","DOIUrl":"https://doi.org/10.3905/pa.8.2.389","url":null,"abstract":"Practical Applications Summary In International Equity Investing: Is Flexibility the New Diversification?, from the September 2019 issue of The Journal of Portfolio Management, Sunder Ramkumar, Michelle Black, and Vincent Fu (all of Capital Group) investigate the effects of geographical restrictions on US mutual fund performance. They find that, in the face of increased correlation of equities around the world, investment strategies with fewer geographical restrictions perform better than traditional international portfolio allocations designed to offset risk in US domestic investments. The authors attribute this enhanced performance to a wider opportunity and greater flexibility among managers. “We argue that the case for international investing increasingly rests on the return potential from investing in a broad set of companies and that flexibility to invest across borders is key to capturing this value,” they write. TOPICS: Emerging markets, mutual funds/passive investing/indexing","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-06-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123489240","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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