Category: Portfolio Management

  • Investment Portfolio Design for an Unpredictable World

    | | Portfolio Management

    Investors are always faced with choices.  My experience tells me that these choices are often driven by simple quirks of human behavior.  Two of these that seem to be big drivers seem to be recency bias and a desire for simplification.  Both of these naturally make us poor investors. For example, in March of 2020 in the throes of the COVID-19 pandemic we spoke with a number of investors who were thinking of just taking their whole equity portfolio flat.  Today as we approach another all-time high that clearly would have been a bad time to sell.  That same period, … Read more Investment Portfolio Design for an Unpredictable World
  • What do CIO’s Care About? Only Four Things

    | | Portfolio Management

    The comment from Kip McDaniel provides a roadmap for what any hedge fund needs to address when marketing to a pension or any client. It is not about you, the manager, but the investor. 1. How does this investment fit within the asset allocation framework of the pension? Why does it matter? 2. How should this investment be delivered to the client? How does it fit within the overall portfolio construction and use capital efficiently? 3. What is your edge versus other managers and how can you generate confidence that this edge can be achieved? 4. What will be done by your fund to protect the money allocated to you? How will your investment help protect the overall portfolio? The questions are relatively simple, but the answers require a lot of thought if the manager wants to truly be a top service provider … Read more What do CIO’s Care About? Only Four Things
  • Skew Risk, Volatility Risk, and Managed Futures

    | | Managed Futures, Portfolio Management, Skew

    Some new research on risk parity makes some provocative comments on the risk and potential value of managed futures in a portfolio. We have cited this recent work in one of our previous posts suggesting that accounting for skew can be helpful relative to a risk parity approach focused on volatility. See Messy markets, mixed distributions, and skew – Thinking about downside risk. What was noted with this work is that hedging volatility will not eliminate skew risk. Volatility diversification or holding negatively correlated assets can reduce volatility but actually increases tail risks on a relative basis. There is a floor with skewness diversification because it is hard to hedge jump risks. Calm or low volatility assets may actually have higher jump risk … Read more Skew Risk, Volatility Risk, and Managed Futures