Take a closer look at innovations and shifts in investment management and risk assessment.

  • High Dividend Yield Portfolios: More Popular, Yes, But What About Risk?

    Several recent articles have cited the renewed popularity of funds composed of stocks with high dividends. These articles pointed out that as stock prices have risen, valuations have increased, and this type of strategy may be more risky because it has become overvalued. Our goal was to look at the "riskiness" of the strategy through the lens of our risk models and to test the thesis using some standard valuation measures.

    Melissa R. Brown, CFA Research Paper No. 76
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  • Real Estate and Financials Go Their Separate GICS Ways: An Opportunity for Those Seeking Lower Volatility?

    Having been extracted from the GICS Financials sector, Real Estate is now a GICS unto itself. A recent article on noted that this change could lead to increased investment in REITs, as investors concerned about the volatility in public markets seek the relatively lower volatility and better risk-return tradeoff of REITs. The article added that the 10-year volatility of REITs is significantly lower than that of the overall Financials sector. We thus set out to look at a longer-term picture of expected volatility of the new Real Estate sector, Financials including Real Estate (the “old” Financials sector), and Financials without Real Estate (the “new” Financials). 

    Melissa R. Brown, CFA Research Paper No. 75
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  • What's in a Name? In The Case of Smart Beta, It's Hard to Tell

    Do ETF buyers, especially those seeking smart beta strategies, really know what they are getting? Is it alpha? In this paper, we focus on a few types of smart beta portfolios in order to highlight similarities and differences driven by methodology. Our results suggest a number of conclusions about how investors should be thinking about the proliferation of smart beta portfolios.

    Sebastian Ceria, PhD, Melissa Brown, CFA, Ian Webster, and Robert Stubbs, PhD Research Paper No. 74
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  • Executive Summary: A CVaR Scenario-based Framework For Minimizing Downside Risk In Multi-Asset Class Portfolios

    In this paper, which is an executive summary of an Axioma technical report, we show how to minimize downside risk in multi-asset class (MAC) portfolios. By comparing the scenario-based Conditional Value at Risk (CVaR) approach with parametric Mean-Variance Optimization (MVO) approaches that linearize all the instruments in the MAC portfolio, we show that (a) the CVaR approach generates MAC portfolios with better downside risk statistics, and that (b) the CVaR hedges return more attractive risk decompositions and stress-test numbers—tools commonly used by risk managers to evaluate the quality of hedges.

    Kartik Sivaramakrishnan, PhD, and Robert Stamicar, PhD Research Paper No. 73
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  • CoCo Risk: Practical Approaches to Measuring Risk

    CoCo (contingent conversion) bonds have seen an upsurge in the headlines lately. In a nutshell, these instruments allow banks to boost regulatory capital during periods of financial stress, but not at the expense of taxpayers; hence, these instruments mitigate the too-big-to-fail doctrine. Investors of CoCos take the brunt of losses if a bank’s capital ratio dips below a predefined level.

    Robert Stamicar Research Paper No. 72
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  • Turning Negative Into Nothing: An explanation of "adjusted factor-based performance attribution"

    Factor attribution sits at the heart of understanding the returns of a portfolio and assessing whether a manager has invested in a manner consistent with his value proposition. In this paper, we will step back and look at factor-based attribution from first principles, as well as describe a methodology that will help correct some of the underlying issues that may arise and produce misleading results.

    Research Paper No. 71
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  • More than Just a Second Risk Number: Understanding and using statistical risk models

    Although fundamental factor risk models are more commonly used and understood by portfolio managers, statistical factor risk models provide an important alternative and adaptable view on risk. In times of unusual market movements and trends that are not well modelled or captured by traditional fundamental factors, statistical risk models can be leveraged to identify these unexpected sources of risk. This paper describes how a combination of fundamental and statistical factor risk models can be exploited in any investment process.

    Christopher Martin, MFE, Anthony A. Renshaw, PhD, and Chris Canova, CFA Research Paper No. 70
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  • Multi-factor Investing: Practical Considerations for Portfolio Managers

    Factor-based and smart beta products have become a growing trend as investors look for ways to quantitatively expose their portfolios to certain historically successful investment themes while reducing the volatility that comes from betting on individual securities. The factor investing trend spawned multi-factor investment products as investors recognized that certain factors may underperform in certain market conditions and combining one or more of them can potentially limit the portfolio’s downside risk.

    Ian Webster Research Paper No. 69
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  • Axioma delivers FinTech’s first born-in-the-cloud, multi-asset class enterprise risk solution

    Following the global financial crisis of 2008, capital markets organizations have faced increasingly stringent regulatory reforms designed to make global markets safer for investors, improve transparency, reduce risk and avoid another financial meltdown. Financial institutions are actively working to enhance and future-proof risk analysis across their business and investment needs.

    Research Paper No. 68
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  • Stress Testing the Impact of Brexit On Bonds, Equities and Other Assets Using Axioma’s Multi-Asset Class Risk Tools

    How might investors be affected if the United Kingdom leaves the European Union? Here we explain how an investor may wish to distinguish between the immediate implications and long-term structural consequences of the event. We review other partially relevant historical events for guidance. Obviously, significant comparable political turning points are somewhat rare in contemporary financial markets, so finding historical precedence to assist in modeling the likely consequences for asset prices is difficult.

    Philip Jacob, Ph.D.; Diana Rudean, Ph.D.; William Morokoff, Ph.D. and Melissa Brown, CFA Research Paper No. 67
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