Axioma Quarterly Risk Report Cites Currency Risk as a Notable Outlier
NEW YORK, May 20, 2015 – Market risk unexpectedly eased in the first quarter, despite a raft of concerns ranging from growth issues in Europe, China and Japan; falling oil prices; currency weakness against the U.S. dollar and the crisis in Greece, according to a report released today by Axioma, Inc., a leading provider of advanced tools for risk management and portfolio construction. Read more…
The widespread availability of passive products have investors asking: Why pay for active management if I can potentially do just as well with a passive product? Active managers must respond, demonstrating the value of their products and substantiating that value by demonstrating consistent and repeatable investment skill. Performance attribution is a natural starting point for assessing the value of an investment product. One of the issues encountered when using standard attribution methods is that the structure used to decompose returns—a classification scheme for Brinson-based attribution and a linear returns model for factor-based attribution—may not match the investment process of the portfolio manager. In this paper, we contend that investment managers should tailor attribution methods to match their investment processes, highlighting sources of portfolio returns that correspond to their intended bets and showing that these sources are statistically significant overtime. The goals of this paper are two-fold: first, we identify issues commonly encountered with standard, off-the-shelf performance attribution methodologies, and, second, we suggest ways to customize and extend these methodologies to yield attribution results that better match the investment process at hand.
Research Paper No. 057
Axioma’s Olivier d’Assier suggests that superannuation funds could be doing themselves a disservice with the typical approach to currency hedging, but Axioma can help.
Axioma’s Anthony Renshaw, PhD, has observed that a typical low volatility portfolio has allocated less to utilities and consumer staples and more to financials, a sector with a very different set of expectations. This could have consequences for low-vol ETF’s, as reported in ETF Trends
NEW YORK, March 18, 2015—Axioma today released the newest versions of Axioma Portfolio Analytics™ and Risk Model Machine ™, delivering better views for increased portfolio insights, combined with processing enhancements for faster analytics generation. Read more…
New York, March 11, 2015 — Axioma, a leading provider of advanced tools for risk management and portfolio construction, today announced that the company has been named “Most Innovative” in the Financial Services category of the 2014 NextGen Awards by The Software & Services Division (SSD) of the Software & Information Industry Association (SIIA). Read more…
A Low Vol Surprise? Since mid-2012, the allocation to the Financials sector in typical low volatility portfolios has doubled in most markets and is now the largest sector allocation. At the same time, allocations to utilities and consumer staples have decreased substantially. The resulting portfolios may be so concentrated in Financials that managing the resultant exposures is difficult.
Research Paper No. 056
The traditional Markowitz MVO approach is based on a single-period model. Single period models do not utilize any data or decisions beyond the rebalancing time horizon with the result that their policies are myopic in nature. For long-term investors, multi-period optimization offers the opportunity to make wait-and-see policy decisions by including approximate forecasts and long-term policy decisions beyond the rebalancing time horizon. We consider portfolio optimization with a composite alpha signal that is composed of a short-term and a long-term alpha signal. The short-term alpha better predicts returns at the end of the rebalancing period but it decays quickly, i.e., it has less memory of its previous values. On the other hand, the long-term alpha has less predictive power than the short-term alpha but it decays slowly. We develop a simple two stage multi-period model that incorporates this alpha model to construct the optimal portfolio at the end of the rebalancing period. We compare this model with the traditional single-period MVO model on a simulated example from Israelov & Katz  and also a large strategy with realistic constraints and show that the multi-period model tends to generate portfolios that are likely to have a better realized performance.
Research Paper No. 055
Risk Turns Upward in Fourth Quarter of 2014 And Forecasted to Rise in Year Ahead
NEW YORK, February 10, 2015 — Risk made a sharp turnaround from the year’s pattern of decline in the fourth quarter of 2014, fueled by tumbling oil prices, weakening currencies, and a number of other economic factors, according to an analysis of Axioma risk models. Risk factors are suggesting a choppier period of market returns and risk in 2015. Axioma is a leading provider of advanced tools for risk management and portfolio construction. Read more…