Category: Diversification
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Power-Assisted Diversification: A Goldilocks Approach to Benchmark Diversification
TMA: I am pleased to introduce Dorian (Randy) Young as a contributor. Randy is an independent investment professional living in the Bay Area. Power-Assisted Diversification: Not Too Concentrated and Not Too Diversified Dorian (Randy) Young, CFA, CAIA A number of years ago, as someone proficient with benchmark methodologies, I was asked by an investment measurement…
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The Risk Parity Tower of Babel
Update, Nov. 7 2012: Evidently the interviewer was Bob Litterman, renowned in several areas of quantitative finance, especially for the Black-Litterman model. The first several times I heard of or read about risk parity I was puzzled. The media, it seemed, had distilled descriptions of risk parity into some variation on “a leveraged bond portfolio”…
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Why Rational Investors Hold (Some) Volatile Assets
For several years I managed quantitative equity portfolios at Freeman Investment Management. The firm had been a pioneer in creating low volatility strategies, both long-only and long-short. In addition to managing low volatility portfolios, at Freeman we had been advocating using volatility indices instead of style indices, both as performance benchmarks and as explanatory…
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If you’re not rebalancing, you’re not diversifying
My brother, not an investment professional, recently asked me whether he ought to rebalance his 401(k) portfolio. The short answer: “Yes!” One of my first projects after business school had to do with assessing the effects of different hypothetical portfolio weighting and rebalancing schemes in an international equity portfolio, using EAFE countries. Tricky to do…