Portfolio Construction

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.

US Treasury yields and inflation expectations continue to rise, as Fed insists it will remain “patient”; Dollar strengthens over widening interest-rate differential; Portfolio risk surges in perfect storm.

Factor volatility drives up US market risk; US small-cap stocks hold on to their advantage; Asset return dispersion widens in Asia Pacific ex-Japan.

Qontigo launched the Axioma Worldwide Macroeconomic Projection Equity Factor Risk Model (“Macro Model”), which is designed to capture the investment risk of a global portfolio through the lens of macroeconomic risk factors.

The new Axioma Worldwide Macroeconomic Projection Equity Factor Risk Model offers a unique way to identify a portfolio’s exposures to macroeconomic factors, such as interest rates and inflation, while maintaining the structure and benefits of a more traditional fundamental equity factor risk model.