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Journal Article

Risk-Based Dynamic Asset Allocation With Extreme Tails and Correlations

Portfolio management is moving toward a more flexible approach capable of capturing dynamics in risk and return expectations across an array of asset classes.

Journal Article

Multi-Period After-Tax Reporting: A Practical Solution

We propose an after-tax performance report aimed at enhancing wealth preservation and accumulation for taxable investors.

Alternative Thinking

The Illusion of Active Fixed Income Alpha

Do fixed income (FI) managers generate alpha? We take a deep dive into the determinants of excess of benchmark returns for a broad set of popular active FI categories.

Journal Article

A Historical Perspective on Time-Varying Expected Returns

Investors naturally think about the expected returns of bonds based on their market yields, thus assuming time-varying expected returns.

Alternative Thinking

The Illusion of Active Fixed Income Diversification

We examine popular active fixed income categories and find that a persistent overweight to high yield credit explains the majority of fixed-income managers’ active returns. We then discuss some key implications for asset owners.

Alternative Thinking

It Was the Worst of Times: Diversification During a Century of Drawdowns

We use nearly 100 years of data to evaluate the effectiveness of diversifying investments during the worst of times for most portfolios and find that attempting to tactically avoid equity sell-offs is likely to disappoint.

Perspective

Response to Thomas Hoenig’s “Why ‘Risk-Based’ Capital Is Far Too Risky”

My colleagues have written a response to Thomas Hoenig's recent WSJ op-ed "Why 'Risk-Based' Capital Is Far Too Risky." Hoenig's recommended approach to managing leverage risk using a "simple" notional leverage limit reminds us of Einstein's famous purported comment to make things as simple as possible, but not simpler. The authors believe that Hoenig's approach fails to meet the Einstein test.

Perspective

The George Costanza Portfolio

In a follow-up to Liquid Alt Ragnarök?, Cliff shows the results of an illustrative portfolio that does the opposite of what we’d normally do in the spirit of George Costanza, who in one episode of Seinfeld decided he must, in all things, do the opposite of what he’d normally do.

Perspective

Factor Investing Explicitly Tries to Look Lousy on Active Share

There has been much ink, and maybe even some blood, spilled debating the merits of “Active Share” for judging an investment fund. Cliff reviews the frequent misueses of active share, especially related to applying it factor investing

Perspective

Looking for the Intuition Underlying Multi-Factor Stock Selection

Cliff points out that although the benefits of combining factors into a diversified portfolio are large and well understood, one obstacle for many is gaining intuition about results. He tries to help.