Applied Research

The surge in oil prices since November 2020 has highlighted the challenges—and even opportunities—of measuring and managing the impact of swings in oil prices on portfolios.

Investors are getting jittery over inflation, thanks to continued fiscal stimulus, combined with the effects of prolonged monetary easing. This, in turn, has pushed long-term government rates to 12-month highs, while share prices continue to climb.

This is the third installment of a series of posts highlighting the risk-measurement benefits of a model that links separate regional models, versus a single global model.

In this paper, we take a closer look at the pairwise interactions of some of the asset-class pairs and review how they affected the risk of a global multi-asset class portfolio over the past 14 months, with a particular focus on the most recent environment.

The impact of Robinhood at al did not escape the attention of our risk models. The roles of Liquidity and Leverage as risk factors in the Axioma fundamental models has been in full display on the heels of the recent trading frenzy which sent previously unpopular stocks soaring in January, only to tumble in early February. Other typically “compensated” style factors, such as Volatility and Size, also had a significant reaction, resulting in an overall increase in style factor risk.

Is one global model sufficient to manage the risk of a global equity factor portfolio? Yes, but because factors behave differently by geography, we believe a model that is aware of these variations can do an even better job of identifying, and therefore managing, active risk.

The year of the Rat is finally over. The COVID-19 pandemic. Global lockdowns. Failed reopenings. Second and third infection waves. Anti social distancing protests. Pre and post US election theatrics. Brexit trade deal. Multiple vaccines. GameStop. So, what’s in store for investors in the year of the Ox?

The recent euphoric trading of GameStop and other high-flying stocks—prompted by retail traders trying to squeeze institutional short sellers out of their positions—had a substantial impact on specific risk, particularly on less diversified portfolios, but even large benchmarks such as the Russell 2000 have been affected. The frenzy produced large dislocations in equity-portfolio active risk. […]

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.

A sector rotation may be brewing, but it hasn’t happened yet. In fact, the comeback will likely be to a “new normal” and, therefore, we may never see a “full rotation.”

In capital markets investing, the greater fool theory1 states that an investor buying a risk asset, no matter its current valuation, can always find a “greater fool” to buy it later at a higher price. The theory rests on the subjectivity of valuations and the fact that beauty (the attractiveness of the investment) is always […]

In a surprising turn of events, most equity markets finished 2020 with sizable gains—and the fourth quarter unquestionably did its part. Benchmark risk continued to slide in Q4—except for a blip in November—but still ended the year higher than where it started. Factor returns went wild in Q4 and many regions saw outsized returns for the year.