Take a closer look at innovations and shifts in investment management and risk assessment.

  • Adding Alpha by Subtracting Beta: How Quantitative Tools Can Improve a Portfolio's Returns

    Fundamental (discretionary) portfolio managers typically build their portfolios from the bottom up. That is, they identify stocks they expect to beat the market and combine them to create a portfolio. However, fundamental managers can leverage quantitative tools to help identify and lessen potential issues in their portfolio, while still maintaining their investment views and goals. In this paper, we’ll use a “real world” portfolio to illustrate how quantitative tools can improve a portfolio’s realized returns.

    Chris Martin Research Paper No. 93
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  • Is Risk Really as Low as You Think? - Revisited

    Risk has bumped up against new lows, but not all components of risk are participating equally in the overall decline. We examine which factors are driving risk lower – and which portfolio managers should keep an eye on.  We also use some risk-based signals to determine that a market peak is not imminent. Could be famous last words, of course…

    Melissa R. Brown, CFA Research Paper No. 92
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  • Stress Testing Best Practices

    Previously, we have discussed how optimization techniques can help fixed-income managers construct portfolios, and how stress testing should be part of an optimization framework that includes hedges and overlays. Whether embedded in an optimization framework or not, stress tests are critical from a risk management perspective. This note, which outlines common stress testing techniques along with some best practices, is our first installment in a series of notes involving stress tests.

    Iulian Cotoi and Robert Stamicar Research Paper No. 91
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  • Experimenting with Axioma's New Japan Model

    Axioma recently released a big risk model update for its Japan suites. The breadth and depth of the changes span both the return and risk models, as well as the methodology used to calibrate them. In this paper, we examine the intuition this latest generation of fundamental style factors provides practitioners. The four fundamental styles upon which we will focus are the ones captured by the new profitability, earnings yield, and dividend-yield factors, as well as the revamped growth factor.

    Olivier d’Assier, Managing Director, APAC Research Paper No. 90
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  • Reducing Turnover and Transaction Costs With a New Class of Equity Reversal Signals Based on Volatility Differences

    Short-term momentum (STM) is, perhaps, the most well-known equity reversal signal, but is limited in its real world application due to turnover and transaction costs. In this paper, we present three new equity reversal signals. Each new signal exhibits prototypical reversal behavior, and two of them exhibit roughly half the turnover associated with STM.

    Anthony A. Renshaw, PhD Research Paper No. 89
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  • Fixed-Income Portfolio Optimization

    By using a risk model to analyze a portfolio, managers gain insight into risk and exposures. For example, how would an increase in spread duration in the energy sector impact the risk of a portfolio? Or what is the impact of an overweight to Financials relative to a benchmark? Fixed-income risk models allow us to quantify these questions, which in turn help managers make better decisions around on how they construct and hedge their portfolios.

    Christopher Martin, Kartik Sivaramakrishnan, and Robert Stamicar Research Paper No. 88
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  • Identifying Risks and Revealing Opportunities Sector by Sector: Information Technology

    In this series of articles, we dig deep into the risk characteristics of—and investment opportunities provided by—a number of macroeconomic sectors. Our aim is to help risk model users better understand risk from a sector perspective. The information should be helpful to risk managers, especially at fundamental shops, as well as portfolio managers (PMs) with a sector focus.

    Melissa R. Brown, CFA Research Paper No. 87
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  • Credit Spreads: Quo Vadis? Stress-testing yield curves and corporate bond risk premia in anticipation of further Fed rate hikes

    In this paper, we assess the potential impact of a number of possible scenarios (including those from 1994 and 2004) on a USD-denominated multi-asset class model portfolio, using the stress-testing capabilities of our Axioma Risk portfolio analysis platform.

    Christoph V. Schon, Executive Director, Applied Research Research Paper No. 86
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  • A More Complete View of Equity Portfolio Risk: Exposing Vulnerabilities with a Multi-Asset Class Risk System

    This paper looks at ways the analysis of a global equity portfolio can be enhanced through the use of a multi-asset class risk solution to deliver additional insights on the portfolio’s sensitivities to certain macroeconomic factors and co-movements with other asset classes. Specifically, the question we are addressing here is whether we can complement the analysis from our equity fundamental factor models by looking at our portfolio through the lens of a multi-asset class system not bounded by equity-only factors to identify areas of misalignment with the manager’s views on other asset classes.

    Olivier d’Assier, Managing Director, APAC Research Paper No. 85
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  • Is Risk Really As Low As You Think?

    The media has seized on the seeming paradox of high market uncertainty accompanied by unusually low equity market volatility. The uncertainty has many potential sources. What will be the impact of Trump’s policies? Will we see more populist uprisings? Will central banks reverse course? Forecasts from Axioma’s risk models concur—risk seems unusually low and, in fact, has fallen fairly steadily over the last 12 months, with just a few hiccups related to the Brexit vote and the US election.

    Melissa R. Brown, CFA, Managing Director of Applied Research Research Paper No. 84
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