Portfolio Construction
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portfolio construction, factors, smart beta, risk mitigation
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Is Your Minimum Volatility ETF a Crowded Trade? | ETF Trends

Is Your Minimum Volatility ETF a Crowded Trade? | ETF Trends | Portfolio Construction | Scoop.it
So far in 2016, we’ve seen a large amount of net inflows into minimum-volatility ETFs as investors seek shelter in lower-risk stocks. These smart beta ETFs are designed to target the factor premium that has been attributable to favoring lower-risks stocks over their higher-risk counterparts.

Recent press, articles, and whitepapers have sharply criticized the minimum-volatility trade, and some have said that the higher valuations associated with these types of stocks are evidence of overcrowding by investors. This type of behavior suggests the premium investors harvest for owning such securities is likely to come tumbling down sooner rather than later.

Like all investment strategies, minimum volatility cycles through outperformance and subsequent underperformance over periods of time. Based on the conditions described above, should investors be thinking about rotating back out of minimum-volatility ETFs?
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Positioning vs Construction

Positioning vs Construction | Portfolio Construction | Scoop.it

For most investors, portfolio construction is more important than portfolio positioning. This is because a retirement portfolio positioned for outrageous unexpected events will likely not be able to do its job over the long term, even if it gets an outlier right here or there. A well-constructed portfolio, on the other hand, is durable and ready for anything.

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AQR - How Can a Strategy Everyone Knows About Still Work?

AQR - How Can a Strategy Everyone Knows About Still Work? | Portfolio Construction | Scoop.it

Some assert that once a strategy is “discovered” it can’t work anymore. Others, often implicitly, assume the future will look as wonderful as the past. Perhaps not surprisingly, we stake out a middle ground. We’re going to argue that certain well-known classic strategies that have worked over the long term will continue to work going forward, though perhaps not at the same level and with different risks than in the past.[1] We will focus on classic “factor”-type strategies.[2] Our favorites won’t shock anyone. They are things like value, momentum, carry and quality/defensive.[3] Of these, we’ll use value investing as a common example throughout this discussion.

 

We don’t consider these classic strategies to be “alpha” in the traditional sense. However, there can be better or worse versions of them, and creating new, better versions is certainly a form of alpha (this can lead to great semantic battles).[4] Still, to be real alpha something has to be known to only a modest number of people/organizations (one being optimal). By this definition, classic strategies defined in well-known ways don’t fit. But, presumably sometime in the past, when they were much less well-known, they were indeed at least closer to “alpha” in all senses of the word. This brings us to the title question — now that they are “classics” and known to many, why should they still work?

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Alpha or Assets

Alpha or Assets | Portfolio Construction | Scoop.it

More and more investors are buying “factor” based strategies which invest using measures like valuation and low volatility, but the most popular strategies are applying factors in the wrong way. Strategies should be built for alpha, not scale—but the asset management industry has gone in the opposite direction.
Most factor-based strategies—commonly called Smart Beta—have hundreds of holdings and high overlap with their market benchmark. The far more powerful way to apply factors is to use them first to avoid large chunks of the market and then build more differentiated portfolios of stocks with only the best overall factor profiles. While not as scale-able as smart beta, this alpha-oriented approach has led to much better results for investors.

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Ces gérants qui battent le CAC : l'homme aux 1400 %

Ces gérants qui battent le CAC : l'homme aux 1400 % | Portfolio Construction | Scoop.it
Les gérants en mesure de se prévaloir d'une hausse de + 1363 % de la valeur liquidative de leur fonds Actions en moins de 22 ans (soit une hausse moyenne de + 13,11 % chaque année !) ne courent guère les rues.
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Les ETF recueillent des flux solides au 3è trimestre

Les ETF recueillent des flux solides au 3è trimestre | Portfolio Construction | Scoop.it
Les fonds actions sont en piste pour une année record de collecte. Au sein de l'univers obligataire, on observe une rotation vers les fonds à duration courte.
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Un calme trompeur sur les taux

Un calme trompeur sur les taux | Portfolio Construction | Scoop.it
Certains estiment qu'à près de 3 %, le rendement des emprunts d'Etat américains attire de nouveau les investisseurs.
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Dette: l'Argentine devra rembourser les «fonds vautours»

Dette: l'Argentine devra rembourser les «fonds vautours» | Portfolio Construction | Scoop.it
L'Argentine a été condamnée vendredi en appel à New York à rembourser près de 1,5 milliard de dollars aux deux « fonds vautours » qui avaient ...
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ETFs register first outflows in over two years

ETFs register first outflows in over two years | Portfolio Construction | Scoop.it
ETF Strategy ETFs register first outflows in over two years ETF Strategy Powershares, part of the Invesco group, ranks fourth in assets, had net out flows of $586 million in June, but has enjoyed net inflows of $7.16 billion year to date, a large...
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Immobilier : vers une explosion ou un dégonflement de la bulle immobilière ?

Immobilier : vers une explosion ou un dégonflement de la bulle immobilière ? | Portfolio Construction | Scoop.it
La France est-elle au bord du krach immobilier ?
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Wall Street atteint encore des sommets

Wall Street atteint encore des sommets | Portfolio Construction | Scoop.it
Le Dow Jones, l'indice vedette de Wall Street et le S&P 500 ont battu mercredi de nouveaux records historiques.
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The Smart Money Will Be Selling into Wednesday's Rally

The Smart Money Will Be Selling into Wednesday's Rally | Portfolio Construction | Scoop.it
 
By EconMatters
Not a Bear in Sight
Everybody and their uncle is long this market right now, and equities have had a nice run with no pullbacks.
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The One Chart That Explains the Massive Risk of Investing in Gold & Gold Stocks

The One Chart That Explains the Massive Risk of Investing in Gold & Gold Stocks | Portfolio Construction | Scoop.it
Viewing the chart above, a six-year old child could tell you that investing in physical gold and gold mining stocks (as indicated by the AMEX HUI gold bugs index) yielded returns from 2001 to 2012 far superior to the returns of the US S&P 500 Index...
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6 Reasons Why Your Fund Checklist is Hurting Performance 

6 Reasons Why Your Fund Checklist is Hurting Performance  | Portfolio Construction | Scoop.it
  • Most advisors have a fund checklist or screen: a list of selection criteria they employ to help determine whether a fund is worthy of further evaluation.
  • The vast majority of checklists we see employ a performance screen based on a 3- or 5-year period. 
  • We believe that employing such a performance screen not only misleads selection efforts, but also can be harmful to portfolio performance.
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When Measures Become Targets: How Index Investing Changes Indexes

When Measures Become Targets: How Index Investing Changes Indexes | Portfolio Construction | Scoop.it
Indexes are affected and changed by asset flows into strategies which target those indexes. This is true when hundreds of billions of dollars seek low price-to-book strategies, and for the entire market as a whole. Fund flows affect everything, especially when those flows have T after them. To this point, this has worked in one direction, for the most part. Portfolios with decent valuations, by historical standards, are only achievable today through portfolios that are very different from the S&P 500. Costs are very important. But there are management fees and there are valuation multiples. At the very least, I urge you to consider both.
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AQR - The Siren Song of Factor Timing aka “Smart Beta Timing” aka “Style Timing”

Everyone seems to want to time factors. Often the first question after an initial discussion of factors is “ok, what’s the current outlook?” And the common answer, “the same as usual,” is often unsatisfying. There is powerful incentive to oversell timing ability. Factor investing is often done at fees in between active management and cap-weighted indexing and these fees have been falling over time. Factor timing has the potential of reintroducing a type of skill-based “active management” (as timing is generally thought of this way) back into the equation. I think that siren song should be resisted, even if that verdict is disappointing to some. At least when using the simple “value” of the factors themselves, I find such timing strategies to be very weak historically, and some tests of their long-term power to be exaggerated and/or inapplicable.
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How Can "Smart Beta" Go Horribly Wrong?

How Can "Smart Beta" Go Horribly Wrong? | Portfolio Construction | Scoop.it

If investors don’t wise up soon that rising valuations are responsible for most of the “alpha” produced by smart beta, the inevitable mean reversion to historical valuation norms threatens to unleash a smart beta crash.

 1. Factor returns, net of changes in valuation levels, are much lower than recent performance suggests.

2. Value-add can be structural, and thus reliably repeatable, or situational—a product of rising valuations—likely neither sustainable nor repeatable. 

3. Many investors are performance chasers who in pushing prices higher create valuation levels that inflate past performance, reduce potential future performance, and amplify the risk of mean reversion to historical valuation norms. 

4. We foresee the reasonable probability of a smart beta crash as a consequence of the soaring popularity of factor-tilt strategies.

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Assessing smart beta risk factor performance

Assessing smart beta risk factor performance | Portfolio Construction | Scoop.it
Vincent Denoiseux, a director in Deutsche Asset & Wealth Management systematic funds business, analyses the smart beta trend of investors looking to create portfolios of risk factors.
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Nouveau record pour les grands fonds de pension de la planète

Nouveau record pour les grands fonds de pension de la planète | Portfolio Construction | Scoop.it
14.000 milliards de dollars, c'est ce que valent des biens détenus par les grands fonds souverains et les principaux fonds de retraite des entreprises et des Etats.
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Les marchés des matières premières retrouvent les faveurs des investisseurs

Les marchés des matières premières retrouvent les faveurs des investisseurs | Portfolio Construction | Scoop.it
Au cours des deux derniers mois, les cours du pétrole ont progressé de 12 %, ceux de l'or de 15 %.Le rebond du métal jaune reste dû, avant tout, à des mouvements spéculatifs.
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How ‘Smart-Beta’ ETFs Fit in a Portfolio

How ‘Smart-Beta’ ETFs Fit in a Portfolio | Portfolio Construction | Scoop.it

As the exchange traded fund universe expands into enhanced, “smart-beta” indexing strategies, financial advisors are spoiled for choice. Still, it is important to pause and take a moment to understand what you’re getting yourself into.

“Having so many choices is a good problem to have, but it is important to understand the differences among them to construct an investment portfolio that suits its intended purpose,” Dan Waldron, senior vice president and ETF strategist at First Trust Portfolios LP, said on InvestmentNews. “It may be helpful to put all ETFs into two broad categories: beta and alpha.”

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Les stratégies d'« indices intelligents », la nouvelle martingale des gérants

Les stratégies d'« indices intelligents », la nouvelle martingale des gérants | Portfolio Construction | Scoop.it
Des gestions lancées sur le segment du « smart beta » connaissent une croissance spectaculaire.Les investisseurs sont...
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Si les actifs les moins risqués n’étaient pas ceux que l’on croit ?

Si les actifs les moins risqués n’étaient pas ceux que l’on croit ? | Portfolio Construction | Scoop.it
Quand le Panama émet à 4,3% à 40 ans ou que des demandes équivalent à la moitié du PIB sur une émission du Rwanda, cela rappelle de mauvais souvenirs et laisse encore beaucoup de place pour la poursuite de la détente des taux des pays périphériques...
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Currency war risk highest in emerging markets, says ING IMEurope

Currency war risk highest in emerging markets, says ING IMEurope | Portfolio Construction | Scoop.it

The greatest risk of a currency war breaking out involves emerging market countries whose exports compete with those from Japan, according to the view of ING Investment Management.

It has said that the likelihood of a currency war between members of the G7 is very low following the meeting of that organisation in the past week, despite the ongoing efforts of both Switzerland and Japan (one of the G7) among developed markets to push down the value of their respective currencies.

The commodity currencies - Australian, New Zealand and Canadian dollars - are seen as over-valued currently by ING IM, but these countries still do not seem willing to push competitive depreciation.

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Bourse : acheter des actions par défaut, un bon choix ?

Bourse : acheter des actions par défaut, un bon choix ? | Portfolio Construction | Scoop.it
Les actions sont encore et toujours au centre de l'attention, et les avis semblent unanimes : elles sont bien parties pour prendre leur revanche sur les marchés financiers. Mais les actions ne font-elles justement pas trop l'unanimité ?
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