Because of the 2015 Paris Agreement, the development of ESG investing and the emergence of net zero emission policies, climate risk is certainly the most important topic and challenge for asset owners and managers now and will remain so over
Investors have often relied on simple but expensive puts to hedge against downside risk and create convexity. But options are not the only option. Managing portfolios in times of crisis used to be simple. Or so the thinking went. When
The emergence of net zero emissions policies is currently one of the most important topics among asset owners and managers. It considerably changes portfolio allocation and the investment framework of both passive and active investors. The academic literature generally concludes
For decades, investors have used a traditional balanced approach to asset allocation, diversifying across fixed income and equities. Investors have typically relied on fixed income to preserve capital and generate income, whilst looking to equities for capital appreciation. Although this
“Returns are unforecastable,” according to the conventional wisdom. In his book A Random Walk Down Wall Street, Burton G. Malkiel famously proclaimed that a monkey throwing darts at the Wall Street Journal could select a portfolio no better or worse
How can concepts like diversification, risk targeting and risk management help build robust multi-strategy portfolios? And how can they be applied in practice? Constructing a robust portfolio is not easy. Even if you expect a relatively benign economic and market
How to Prep Your Portfolio for a Different Kind of Recession Risk. During the first half of 2022, global equity markets tumbled around 20% from their January peak, with losses on typical stock/ bond portfolios almost as large, as bonds
Large moves in one asset class are often accompanied by large moves in other asset classes regardless of the recent correlations in markets. Introduction On 26 November 2021, news headlines were dominated by a new Covid-19 strain – Omicron –
The answer, of course, is that it can’t. Hou, Xue, and Zhang’s (2014) empirical model does price portfolios sorted on prior year’s performance, but for reasons outside of q-theory—it does so by including a fundamental momentum factor, i.e., a factor
Time, the answer to Gollum’s riddle, is to us a vaunted teacher. The first half of 2022 has been a turbulent one. In analysing ‘The Road Ahead’ from this point, our first port is the precedent of history, and of
Generating positive returns in tougher conditions requires new thinking. KEY INSIGHTS Challenging market conditions and deeper structural shifts are demanding fresh thinking from investors. Such thinking may include new ways to help mitigate the impact of volatility on equity portfolios, adapt
I nvestors now face drastically different circumstances compared to the last decade’s favorable environment for beta in general and equities in particular. From an alpha perspective, our outlook for assets is dim. We worry about the impact of the ongoing
Potential solution Rebalancing through an overlay introduces daily monitoring, real-time portfolio rebalancing, and the potential for reduced transaction costs—all while improving policy benchmark tracking. Daily monitoring by the overlay manager allows for immediate identification of and response to portfolio imbalances.
Inflationary pressures will likely peak but not disappear Inflation, once thought transitory, now appears more durable. Supply-demand imbalances, while an expected aspect of the economic cycle, have been exacerbated by the unprecedented nature of pandemic shutdowns. The workforce remains constrained
Executive Summary We demonstrate the building blocks for investors who may either be considering allocating to illiquid assets for the first time, or who want to gain a greater understanding of how much capital they should invest in illiquid assets.
When markets get volatile, it can be tempting to change course. Each crisis, from geopolitical risks to changes in monetary policy, can feel daunting. But rather than trying to predict what happens next, it’s critical for investors to think clearly
Lessons From FIRE In Figure 1, we show a 150-year history of US inflation, overlaid with these new regimes. Inflation – or FIRE as we term it – was the original impetus of the project, it being the subject of
At State Street Global Advisors, we establish a base case that incorporates the dynamics we see as most likely – our Global Market Outlook captures what we expect to see as 2022 unfolds. But acknowledging that things don’t always turn
Lingering COVID-19-related supply-side disruptions, alongside a significant rebound in consumer demand, are producing supply bottlenecks and an inflation rate not seen for decades. We expect 2022 to be a year of gradual absorption of the pandemic shock, with robust but
A fundamentally driven bottom-up investment process A unique approach with multi-level risk-management A higher quality approach to credit Environmental, Social and Governance (ESG) issues form an integral part of our approach Established and strong track record – the strategy has
Executive summary Many aspects of investing are fundamentally rooted in the idea that total investment return includes both investment income and investment price appreciation (growth). Nearly every asset class can be decomposed into these two characteristics—some assets being composed mostly
China Unexplored Portfolio Specialist, Rob Secker, looks at ways in which active investors can exploit market inefficiencies and construct a Chinese equity portfolio. We look at how investors can exploit market inefficiencies and extract value from China’s investment universe. China is
Building a resilient and balanced portfolio should be a priority for many investors in today’s environment of heightened financial market uncertainty and volatility across a range of asset classes, including equities. With that in mind, now’s a perfect time to
Fading scars, enduring policies IN BRIEF Almost two years after the pandemic struck, the global economic recovery has strong momentum, kicked off by huge fiscal and monetary stimulus and now sustained by a robust capex cycle and solid household balance
In brief In recent decades, negative correlations between stocks and bonds have been a tailwind for asset allocators, but negative correlations have been the historical exception, not the rule. Investors may need to change their expectations given the potential for
Building Stronger Portfolios Despite being traded on exchanges for more than a century, commodities are the least well understood of the main asset classes. Over the last 20 years, this gap has begun to close, with many renowned academics pointing
Building a robust portfolio has gotten tougher The last two years have been full of extraordinary challenges. Following the outbreak of the pandemic, the lockdowns and restrictions imposed by governments around the globe hit economies and markets hard and fast.
The routine for many investors is to harvest losses in December. But end-ofyear harvesting could mean missed opportunities. There are many possible reasons why investors decide to harvest tax losses at the end of the year. Perhaps they take pride
New research from Fidelity explores bitcoin’s characteristics, potential benefits and risks, and other implementation considerations KEY TAKEAWAYS We believe bitcoin is an aspiring asset class in a period of price discovery. Like gold, bitcoin is a high-powered, opportunistic hedging asset
The return of inflation is clearly one of the top themes of 2021 and the post-pandemic economic revival. In addition to the temporary effects associated with supply chain bottlenecks (semiconductors, energy, copper, etc.) during a sudden upturn, there is the
Executive Summary: Will the Next Decade Look Like the Last? Help Needed—Traditional Approaches Can No Longer Do It All: While traditional core and core plus fixed income strategies have historically served as a “one-stop shop” allocation to balance risk-seeking allocations,
Investors may be concerned about how to protect their portfolios from the impact of higher inflation. Investments such as commodities, real estate and equities have historically outperformed when prices rise. But performance doesn’t tell the whole story. These asset classes
IN BRIEF Traditional investment approaches are unlikely to meet investors’ long-term goals in the coming years. Simply taking on more market risk will not suffice. There’s no single silver bullet here. Yet investors can reach a 7% return target by
A shift from ‘lowflation’ to a moderately rising inflation regime could bring with it greater dispersion in asset returns. While ultimately positive for investors, the transition may …
Thematic investing is no longer niche. Assets in these funds have grown at an annual rate of 37% since 2018, but the unprecedented events of 2020 in the wake of the COVID-19 pandemic significantly boosted this growth to
In our recent paper, “Weathering the Storm: Exploring Climate Strategies”, we explored the main approaches to integrating climate considerations in investment portfolios. In this article, we dive deeper and look at some nuances in climate data that need to be
T. Rowe Price Insights on U.S. Equities How the rules of investing in the large‑cap growth space have changed Amid the wider performance of the U.S. equity market, one particularly astonishing statistic is that the top 10 stocks in the
"Convertible bonds historically captured over 65% of equity upside but suffered only 50% downside"
Persistent positive skew in the distribution of returns across index constituents suggests that a successful active equity management program must include a process to mitigate omission risk – i.e. the opportunity cost of missing out highreturning stocks that buoy average
What’s in your real asset portfolio? In prior research we highlighted the diversity of real assets in terms of their sensitivities to the equity and bond markets and to macroeconomic factors such as growth and inflation. We now extend our
1Q20 earnings: Virus oddity Global stock markets saw an unprecedented level of volatility in March, as investors attempted to discern how the rapid spread of COVID-19 would aect the economy and corporate profits. The past few weeks have seen a
At the end of 2019, we titled our year-ahead outlook, “20/20 vision: a clearer path for growth.” That was then. Markets have since been thrown into turmoil, and investors are grappling with positioning their portfolios to minimize the damage from
Factor strategies differ significantly in terms of portfolio construction. There is much debate regarding the pros and cons of alternative construction approaches. A vigorous debate has unfurled over the best way to combine factors into a single portfolio, with some
Round Table on Climate Adaptation limate adaptation is a relatively new topic for investors but gaining importance quickly. Universities, ngo’s, governments and engineering organizations are also working on adaptation from their perspectives. Sharing and discussing different perspectives contributes to evaluating
A framework for incorporating sustainable investing in portfolio construction Portfolio perspectives What's new in this paper
Approximately 30%–40% of the variability in global individual equity securities can be explained by top-down country and industry memberships. Active management of global equity portfolios in the asset management industry, however, focuses almost exclusively on bottom-up security selection approaches, either
All investments involve risk, including the possible loss of capital. There is no guarantee that any particular asset allocation will meet your investment objectives. The findings shown herein are derived from statistical models. Reasonable people may disagree about the appropriate
Investable bank loans are floating-rate loans made to speculative-grade issuers that theoretically constitute a safer alternative to high yield bonds. Because bank loans pay a floating interest rate, they provide a hedge against rising short- term interest rates. In addition
Making the complex simple The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Where past performance is shown, please note that this
Factor portfolio construction Most portfolio construction methodologies have some mechanism that permits the levels of factor exposure to be ratcheted up and down; however, factor exposure is rarely the main objective and an alternative decision metric is commonly employed. Examples
