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

  • 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
    research paper thumbnail
  • 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
    research paper thumbnail
  • 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
    research paper thumbnail
  • 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
    research paper thumbnail
  • FX Trumps Correlation: How currency effects dominated portfolio risk in the aftermath of the US election

    2016 was a turbulent year for financial markets. A number of unexpected outcomes of major political events caused significant volatility, in particular for currency exchange rates.  This particular combination of market movements led to the slightly unintuitive conclusion that US equities showed one of the lowest risk contributions in a global multi-asset class portfolio compared with their market value weight. More detailed analysis revealed that the main reason for this was that the strong gains of the dollar versus its major rivals had made it appear as if non-USD assets were losing money (despite sometimes healthy gains in their local currency), while the US equity market soared. This resulted in a strong preference for domestic stocks from a US investor’s point of view, both in terms risk and return. In this paper, we will explore how the risk decomposition changes when we alter the base currency of the portfolio or apply implicit currency hedging in our Axioma Risk tool.

    Christoph V. Schon, CFA, CIPM, Executive Director of Applied Research Research Paper No. 83
    research paper thumbnail
  • A Case Study on the Tax-Aware Features in Axioma Portfolio

    We will explore the tax functionality of the Axioma Optimizer through the use of a fictional case study. The case study will discuss how loss harvesting or tax liability can be included in the objective function, as well as how gross and net tax constraints can be used when constructing a portfolio. We will also discuss how tax-sensitive optimizations can be backtested using the Axioma backtester or automated using the Axioma API.

    Walid Bandar, Director, Product Specialist Research Paper No. 82
    research paper thumbnail
  • Risk, Trump and the Great Sector Rotation

    While the US equity market has been unusually strong since the US election, the tide has not lifted all boats. In the period immediately after the vote, some sectors that had been faring well reversed course and failed to participate in the rally. Others that had been underperforming surged. And, finally, some sectors' returns seemed wholly unrelated to the election. Overall, these changes led to higher dispersion across sectors than we have seen in some time.

    Melissa R. Brown, CFA, Senior Director, Applied Research Research Paper No. 81
    research paper thumbnail
  • A Complete and Robust Set of Backtesting Tools: The First Step in Overcoming the Many Challenges of Backtesting

    Practitioners and academics test many investment strategies over various time horizons. This paper will discuss how to overcome a wide array of mechanical difficulties that can occur while completing a backtest. We’ll summarize the most frequent challenges that occur during backtesting and how Axioma solves for them, and we’ll look at a frontier backtest example that highlights Axioma’s comprehensive set of backtesting functionalities.

    Benjamin Lin, MBA Research Paper No. 80
    research paper thumbnail
  • Market Volatility and a New President: Some Historical Perspectives

    With the election decided, the burning question now is, “What next?” And as “unprecedented” as the 2016 US Presidential election may have been, there are at least some precedents to which we can point for insights into what may now lie ahead. Granted, the economic impact of policies introduced by Donald Trump will not be seen for many months or years. Nevertheless, we can look to other market events to get an idea of what we might expect in equity and currency markets over the near term, while the markets are still absorbing the news.

    Melissa R. Brown, CFA, and Bill Morokoff, PhD Research Paper No. 79
    research paper thumbnail
  • Best Practices in Factor-Based Analytics

    As a portfolio manager, have you ever been surprised by a bad return period? Or wondered if there is a better way to identify the risks in your portfolio? Have you wanted to look for sources of return beyond sector breakdowns? If so, this paper will provide an overview into how you can address these questions and more.

    Phil Martinelle Research Paper No. 78
    research paper thumbnail