4 mins

Why allocating to negative expected excess return can be entirely rational

The vast majority of people will actually allocate, during their lifetime, to a strategy with negative expected excess return — and “happily” do so!  What is this strategy?  Insurance.  Why do we choose to allocate to such a strategy?  Risk aversion implies that we’ll take a small shift left in our return distribution for the ...

3 mins

The Need for Tactical Solutions Across Generations: Retirees

This is the final part in a four part series exploring the usefulness of tactical strategies across generations.  The first three parts of the series focused on Millennials, Generation X and Baby Boomers, respectively.  Today, we will discuss Retirees.  Our one-pager on Retirees can be found here. The word "retirement" conjures up different ideas for many people: family, healthcare, hobbies, part-time work, relaxation, ...

2 mins

Risk Budgeting (with Spreadsheet)

In our previous post on portfolio risk attribution, we presented the following formula for decomposing the risk contribution of each asset in a portfolio: This formula shows that the individual risk contributions of each asset are the product of the asset's weight, volatility, and correlation to the rest of the portfolio.  It gives us an ...

3 mins

Risk Attribution in a Portfolio

Diversification is touted as the only free lunch (see our old post Is Diversification Really a Free Lunch) in investing and is a primary way to reduce portfolio volatility without sacrificing a proportional amount of return.  Return characteristics aside, a well-diversified portfolio can be less risky than any of the constituents taken alone; it is ...

4 mins

The Need for Tactical Solutions Across Generations: Baby Boomers

This is the third part in a four part series exploring the usefulness of tactical strategies across generations.  The first two parts of the series focused on Millennials and Generation X, respectively.  Today, we will discuss Baby Boomers.  Our one-pager on Baby Boomers can be found here. When it comes to stock market crashes, the ...

2 mins

The Need For Tactical Solutions Across Generations: Generation X

This is the second part in a four part series exploring the usefulness of tactical strategies across generations.  The first part in the series focused on Millennials.  Today, we turn our focus to Generation X.  Our one-pager on Generation X can be found here. As a whole, Generation X is facing significant financial difficulties.  Individuals ...

4 mins

Replicating LDI Indices with Fixed-Income ETFs

Liability-driven investment policies and asset management decisions are those largely determined by the sum of current and future liabilities attached to the investor, be it a household or an institution. As it purports to associate constantly both sides of the balance sheet in the investment process, it has been called a "holistic" investment methodology. Wikipedia Traditionally, liability-driven investment ...

1 min

Performance After Market Peaks

Relying purely on human intuition is very difficult when it comes to making educated investment decisions, especially when the market is constantly reaching new highs. Historically, market peaks have signaled hard times ahead.  Following the peak in 1929, America faced the Great Depression and a drawdown of 87%.  In 2001, the technology bubble burst, and ...

4 mins

The Need for Tactical Solutions Across Generations: Millennials

This post is the first in a four part series in which we will discuss why tactical strategies are valuable tools for investors of all ages.  Today we will discuss Millennials.  Our Millennial one-pager can be downloaded here. Unlike many tactical managers in the managed ETF space, we do not believe that tactical strategies are ...

Estimating the Historical Duration of Bond Portfolios

Duration is a measure of a bond’s price sensitivity to interest rate changes.  With the inverse relationship between interest rates and the price of a bond, higher duration means that the price will decrease more as interest rates rise.  It is a linear approximation of this price change that applies for small parallel shifts in ...

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