Portfolio Construction

Risk fell again across most indices in Q2 – US short horizon risk finally retraced its path back to where it stood before the 2020 crisis. Almost all components of risk contributed to the decline.

Over time, market-moving events generate either more need or want for portfolio rebalancing. Using each metric’s contribution to the overall market ROOF scores, we can track the motivational nature of the aggregate market move each day (i.e., are they driven by want or need?).

ESG integration, sustainability, and impact investing…While there may be overlap in the meanings of these terms, they each represent a distinct approach to “doing well while doing good” in investor portfolios.

In Q1, most markets continued to build on the gains achieved in 2020, while risk changes were mixed across regions.

Foreign-exchange rates can be very volatile. Investors looking to bet on markets outside their own base currency must decide whether to embrace or mitigate the additional risk. In this paper, we propose a stress-testing framework that can help investors with the decision whether “to hedge or not to hedge”, given their assumptions on expected returns and cross-asset correlations.

Risk rises in the US, but nowhere else; Factor volatility is low compared with recent history, but not longer-term; Value’s strength evident across markets.

Qontigo’s Tax-Managed Investing solution enables asset managers to improve post-tax returns through tax savings. Two new whitepapers investigate the benefit of active tax management for investment strategies, focusing on a broad cap-weighted equity market index and on factor-based strategies.

In this paper, we analyze tax efficient smart-beta portfolios based on the flagship STOXX Factor Index Suite with direct indexing to realize the tax advantages. Smart-beta strategies naturally lend themselves to tax alpha given their high turnover. The STOXX Factor Index suite consists of the Value, Momentum, Small Size, Low Risk, and Quality single-factor indices and a multifactor index engineered to deliver the risk premium associated with each factor using a diversified index of securities with carefully managed exposure, liquidity, and risk characteristics.

Active tax management targets higher post-tax portfolio returns by achieving pre-tax investment goals with lower tax costs. In this paper, we investigate the benefit of active tax management for investment strategies tracking broad cap-weighted equity market indices. Our simulations with historical market data show that tax loss harvesting with the Axioma Portfolio Optimizer can deliver substantial tax savings at low or moderate tracking error levels.

The recent release of the Axioma Macroeconomic Projection Equity Factor Risk Model highlights the risk and return impact of economic variables on equity strategies. Quantitatively driven portfolios are usually constructed (and invested in) without considering the potential impact of big moves in economic variables.

We are happy to announce that Neal Pawar has been named Chief Operating Officer. Pawar most recently served as Group Chief Information Officer at Deutsche Bank and, before that, as a Partner and Chief Technology Officer at AQR Capital.

Rising interest rates are customarily accompanied by gains in stock prices and increasing consumer prices, which are usually seen as signs of a healthy, growing economy. There may come a point, however, when (expected) inflation becomes so high that the central bank may feel compelled to tighten monetary conditions.