Protect & Participate: Managing Drawdowns with Trend Following
For investors looking to diversify how they manage risk, we believe the trend following represents a high transparent, and historically effective, alternative.
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Thinking in Long/Short Portfolios
While few investors explicitly hold long/short portfolios, every active portfolio can be thought of as the benchmark plus a long/short representing the active bets. We use this framework to distinguish the quantity versus quality of active exposures.
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RIP XIV
From inception through 12/31/2017, XIV earned over 40% annualized per year since inception. It then lost over 90% of its value in two days. Was XIV an example of Taleb's Turkey or is there a deeper lesson to be learned?
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Quantifying Timing Luck
Timing luck is the difference in performance of two identically managed portfolios, rebalanced on different days. We derive a model for quantifying timing luck and present a solution for controlling it.
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Factor Investing & The Bets You Didn’t Mean to Make
Factor-based investment strategies seek to manage risk with diversification; completely unconstrained, however, they can be overwhelmed by unintended bets.
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A Null Hypothesis for the New Year
As investors prepare their portfolios for 2018, we should consider accepting that our evidence may be nothing but a fortunate permutation of randomness.
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Portable Beta: Making the Most of the Returns You’re Already Getting
In theory, investors should gear the most risk-efficient portfolio; in practice, few do. Portable beta may help investors create more efficient portfolios.
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Sleuthing Out Allocations
Backing out allocations of an investment strategy can be hard but assuming an average value can be riskier. Simplicity must be balanced with applicability.
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Tactical, But When?
We believe that investors should most actively seek to manage risk when they are most susceptible to sequence risk, i.e. the years around retirement.
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Addressing Low Return Forecasts in Retirement with Tactical Allocation
Low return forecasts make risk management crucial. Tactical strategies have been effective in the past, and moderate allocations can make a big difference.
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Accounting for Autocorrelation in Assessing Drawdown Risk
Volatility can predict drawdowns, but incorporating autocorrelation yields more accurate predictions in equities, low vol, income, and managed futures.
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Building an Unconstrained Sleeve
A presentation exploring how can unconstrained sleeve can be built to target hedging, equity-like, or absolute-return characteristics.
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Expectations with Tactical Equity
Tactical equity strategies are favored in rising rate environments and when the equity markets have large absolute moves.
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Visualizing the Anxiety of Active Strategies
We visualize the anxiety caused by relative performance of several popular factor tilts in comparison to standard market benchmarks.
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Misattributing Bad Behavior
Reported behavior gaps can be very misleading. Disciplined approaches may even show a behavior gap depending on the market environment.
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Crisis Alpha: A Simple ETF Approach
Volatility-based exchanged-traded products can be combined in a systematic way to capture crisis alpha during market crashes.
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Embracing Conflict in Asset Allocation
Embracing conflict in asset allocation by using multiple approaches can help investors harvest the sizable benefits of process diversification.
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Market Timing with Value
Is it possible to perform market timing with value indicators? We explore a recently published AQR paper on the subject and highlight the salient points.
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Managing Active Risk
When investors choose active managers, they introduce active risk into their portfolio, an extra risk that should be be accounted for in risk management.
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It’s 2017: Do You Know Where Your Risk Is?
In this research commentary, we perform a risk decomposition on traditional asset allocations and find exhibit extremely high risk concentrations.
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