Alternative Thinking: Strategic Portfolio Construction (Second Quarter 2015)

May 22, 2015
  • Contributors:

    AQR Capital Management
  • Topic:

    Portfolio Management

Alternative Thinking Quarterly

This issue of Alternative Thinking discusses strategic portfolio construction, focusing on top-down decisions where mean-variance optimization, always to be used carefully, is of even more limited use. How to combine traditional asset classes with illiquids or with alternative risk premia? How much illiquidity, leverage and shorting to allow? The answers — and thus major portfolio choices — are largely driven by investor beliefs and constraints.

Many investors ask for guidance on “putting it all together.” This issue does not give definitive answers, or even recommend a particular framework for making such decisions. Instead, it starts from the authors’ quantitative home territory (inputs such as expected returns, volatilities and correlations) and then explores how investor-specific beliefs and constraints can inform and interact with formal optimization methods

  • The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees.
  • The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. Neither the author nor AQR undertakes to advise you of any changes in the views expressed herein.
  • This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein.
  • Past performance is no guarantee of future results.
  • Certain publications may have been written prior to the author being an employee of AQR.