The traditional 60/40 balanced portfolio is no stranger to coming under fire. Many pundits have decreed the death of the balanced portfolio, arguing that a low yield environment will prove insurmountable and bonds will no longer be able to provide necessary diversification for investor portfolios. This proclamation has yet to be proven correct, and in the investment management industry, being too early is the same thing as being wrong. That being said, is this time different?
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BLOG SERIES: RISK PARITY
In the second installment of this blog series on risk parity, we are going to dive into how dynamically adjusting the leverage applied to the strategy can result in increased stability of the portfolio’s return profile. Actively adjusting the amount of leverage applied to the portfolio is how the strategy scales the size of its bets based on changes in market risk.
[...]BLOG SERIES: UNDERSTANDING RISK
This installment in our volatility series will aim to provide a framework that helps to quantify an investor’s ability and willingness to take risk based on constraints and the importance of reaching wealth targets. Additionally, I will finally add varying returns into the analysis to illustrate the impact of the risk and return trade-off. Through simple examples and simulations, I will show that understanding an investor’s total financial picture and applying a probabilistic framework for risk management can help achieve desired outcomes in the face of uncertainty.
[...]BLOG SERIES: RISK PARITY
In our latest Insight piece, we explore the parallels between the poker table and the world of investing by studying the nuances of risk and uncertainty. Authors Scott Smith (Managing Partner) and Ben Reeves (Manager, Data Science & Engineering) demonstrate how utilizing a Risk Parity strategy can help investors embrace uncertainty and derive more stable investment outcomes.
[...]BLOG SERIES: UNDERSTANDING RISK
In the third installment of our deep dive on volatility, Amin Haji, Manager of Investment Research and Analytics, discusses how portfolio constraints can affect your ability to take risk, focusing on time horizon and liquidity constraints. Using succinct examples, Amin explores whether or not liquidity needs have an effect on how impactful volatility is to your long-term wealth, and how simply having a longer time horizon may not in fact lower your ability to take risk, as conventional investing wisdom would have you believe.
[...]BLOG SERIES: UNDERSTANDING RISK
Volatility drag – or how volatility exacerbates the divergence between arithmetic returns and geometric returns – is something that is often debated by investment managers and investors alike. A common argument is that while higher volatility increases your downside, it can also increase your potential upside and therefore it may be rational to be risk-seeking to some extent. Another argument is that with a long enough time horizon, investors don’t actually need to worry about volatility, because they can tolerate the ups and downs of the market.
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