Research

Using Active Share to Evaluate High-Yield Bond Portfolios

Using Active Share to Evaluate High-Yield Bond Portfolios

There are two chief ways of measuring a portfolio’s deviation from its benchmark: tracking error and active share. The first, tracking error, is the older and more traditional. It gauges a portfolio’s performance deviation from a benchmark return over time - essentially telling an investor how different the returns are from the benchmark. The ... [read more]

Using Momentum and Hedge Funds to Build a Better Portfolio

Using Momentum and Hedge Funds to Build a Better Portfolio

Welles Wilder revolutionized the investment world in 1978 when he developed the Relative Strength Indicator (“RSI”). RSI was one of several new technical indicators that helped individual investors move away from static “60/40” or “70/30” stock/bond asset allocations as trading commissions plummeted in the wake of discount brokerages displacing ... [read more]

Klingenstein Fields Publishes Introduction to Alternatives

Klingenstein Fields Publishes Introduction to Alternatives

Klingenstein Fields, a New York based wealth advisory firm, defines alternative investments simply as any investment product other than so-called “traditional” investments – i.e., stocks, bonds, and cash in an unleveraged portfolio. Due to alternatives’ low or even inverse correlation to these traditional investments, adding “alts” to a typical ... [read more]

Absolute Returns and the Rise of Liquid Alternatives

Absolute Returns and the Rise of Liquid Alternatives

Svein Floden, Head of Liquid Alternatives for Insight Investment, thinks the term “absolute returns” needs to be reconsidered in light of the rise of liquid alternatives. This is the subject of Mr. Floden’s recent white paper for BNY Mellon titled “Redefining Absolute Returns in the Liquid Alternative Era.” A Tale of Two Crises Hedge funds surged ... [read more]

Most Factor Anomalies Are Not Persistent

Most Factor Anomalies Are Not Persistent

Smart-beta indices are constructed to exploit “anomalies” that reward exposure to risk factors beyond what would be expected as “necessary compensation” under the Capital Asset Pricing Model (“CAPM”). Of course, any factor that results in nominal outperformance must be considered on a risk-adjusted basis, since taking on higher risk should engender ... [read more]

The Challenges and Pitfalls of Measuring Factor Exposures

The Challenges and Pitfalls of Measuring Factor Exposures

Factor-based investing has grown significantly in the years since Eugene Fama and Kenneth French first published (1992) their groundbreaking research on the "three-factor model" to explain the return of stocks. Now, a growing number of investors view their portfolios as “collections of various risk-factor exposures,” including risks to particular ... [read more]

Indexing Pioneer Vanguard Skeptical of Smart Beta

Indexing Pioneer Vanguard Skeptical of Smart Beta

Vanguard revolutionized investing with its low-cost, passive indexing products. But after the TMT (tech, media, and telecom) blowup of 2000-2002, when cap-weighted indexes became overstuffed with overvalued dot-coms, critics began maligning cap-weighted index funds as “dumb beta.” The alternative, in their view, was to weight stocks according to ... [read more]

Retiring Baby Boomers to Continue Liquid Alts Boom?

Retiring Baby Boomers to Continue Liquid Alts Boom?

Are liquid alternatives the next wave in asset allocation? Matthew Glaser, Managing Director and Portfolio Manager/Analyst at Lazard Asset Management, thinks so. In a recently published Lazard Insights white paper, Mr. Glaser highlights the advantages of liquid alts – long/short equity funds in particular – and asserts that these investments will ... [read more]

Lazard Explains Benefits of Multi-Factor Smart Beta

Lazard Explains Benefits of Multi-Factor Smart Beta

Smart-beta strategies attempt to provide better risk-adjusted returns by using measures other than market capitalization to weight portfolio holdings. Historically, these alternative weightings have produced higher Sharpe ratios, a measure of return per unit of risk, and this is why they’ve earned the “smart” moniker in the view of their ... [read more]

Combining Liquid Alternatives and Hedge Funds in a Portfolio

Combining Liquid Alternatives and Hedge Funds in a Portfolio

In a recent white paper for the Journal of Index Investing, Wei Ge, a senior researcher at Minneapolis-based Parametric Portfolio Associates, makes the case that liquid alternatives are a “viable investment choice.” The rise of liquid alternatives – which Mr. Ge calls “the newest trend in the investment world” – has been based on the advantages ... [read more]