Portfolio Risk Management

Investor sentiment ended last week negative in all markets we track, with investors in global developed markets, Asia ex-Japan and China remaining bearish. Sentiment in the US, developed Europe, and Japan, stopped short of becoming bearish but remains very negative.

The Japanese yen and Swedish krona have fared worse than the pound, but their volatilities have retreated; UK Exchange Rate Sensitivity Returns have been highly negative; UK leads the pack in 12-month return, but only in local currency.

UK ‘mini’ budget boosts yields and flattens Gilt curve; Third ‘jumbo’ Fed hike propels dollar to fresh 20-year high; Portfolio risk soars as correlations intensify.

Investor sentiment has been on a declining path since late August in all markets we track, except in global emerging markets where the decline started only recently.

“That is a sign that — it’s really about the anticipated impact of the monetary tightening of long-term growth and inflation expectations,” said Christoph Schon, senior principal of applied research at Qontigo.

Inverted Treasury curve reflects worries about long-term monetary-policy costs; UK inflation eases…and so does the pound; Stock-market sell-off heightens portfolio risk.

Worst Day in 2 years leads to: Lower Volatility?(!); Sector and style exposures explain the discrepancy; The short-horizon model risk changes behave more as expected.

Conventional wisdom has it that higher interest rates make a currency more attractive to foreign investors, whereas a weaker exchange rate can be good news for export-oriented economies. Neither is true for the United Kingdom right now.

In a new research paper, we showcase how a portfolio manager can replicate fixed income indices using the Axioma Portfolio Optimizer and the new Axioma Credit Factor Model to create optimal US high- yield portfolios. In the workflow, we replicate a US high yield index with liquid bonds and a set of derivatives and test the solution from a risk perspective. The end goal is to create a set of portfolios that is more cost efficient, as (or more) liquid and as diversified as the index.  

In this research paper, we showcase how a portfolio manager can replicate fixed income indices using the Axioma Portfolio Optimizer and the Axioma Credit Spread Factor Risk Model. We replicate a US high yield index with liquid bonds and a set of derivatives and test the solution from a risk perspective. The end goal is to create a set of portfolios that is more cost efficient, as (or more) liquid and as diversified as the index.

Most markets remain below the red line so far in 2022; Defensive sectors prevail; Global trading volume nears 3-year low.

UK rescue package inflates Gilt yields; Euro recovers after ‘jumbo’ ECB rate hike; Weaker cross-asset correlation reduces portfolio risk.