Our lead article is a testament to the success of our ongoing collaboration with leading academics. Together with three experts from the finance departments of renowned US universities, we analyzed the capital marke assumptions (CMAs) of institutional investors to find out whether their subjective beliefs could be used to mitigate risk and generate alpha. A review of their paper points to promising results, far more relevant information than retail investor surveys. After presenting their work, we also spoke to the three authors of the study in an exclusive interview.
In this issue, we also take a closer look at the energy transition, a monumental task for decades to come. But the challenge is not without its opportunities for equity and commodity investors, as huge amounts of capital will be needed. Read to learn why we think decarbonization and healthy returns aren’t mutually exclusive. In fact, we believe you can’t have one without the other.
Our focus then turns to the merits of trend-following strategies, particularly in times of market stress when they lead to lower investment ratios – and thus lower portfolio risk. But strong market rebounds can have a limiting impact on their success. Discover how our researchers deal with these ‘momentum crashes’ to smooth returns.
And ESG is growing ever more popular among fixed income investors. But investing in green bonds issued by governments often comes with higher interest rate risk. For Euro treasuries, the average duration of green bonds is almost twice that of their conventional counterparts. We examine a concept that allows sustainability-tilted bond investments without risking huge deviations from a traditional benchmark. Yes, you can have a sustainable bond portfolio with a low tracking error.
Our final article looks at how value recovery instruments (VRIs) can make sovereign debt restructuring easier for everyone. Learn how they work and what makes them such an interesting tool for issuers and investors.
We are certain you’ll enjoy the latest issue of Risk & Reward.
Click below to read the featured articles within this edition of Risk & Reward.
Capital market assumptions (CMAs): Evaluating institutional investors’ risk and return expectations
We explore the relationships between subjective beliefs, alpha, beta, and future realized returns based on the long-term capital market assumptions (CMAs) of leading financial institutions.
Energy transition: Challenges and opportunities for commodity and equity investments
We examine the complexities of the energy transition, emphasizing the pivotal role of commodity and equity investments as well as exploring the intricate dynamics of transition to sustainable energy sources and the investment opportunities presented by this shift.
Navigating momentum crashes in a trend-following strategy
Trend-following strategies have historically served to buffer losses in times of equity market stress. But sharp market rebounds after prolonged weakness can stand in the way of their success. We analyze ways of mitigating the impact of such setbacks to reduce maximum drawdowns and smooth returns.
Investing sustainably, but with a low tracking error, in Euro treasuries
To incorporate ESG objectives in a Euro treasury portfolio, we suggest maximizing the share of green bonds while minimizing tracking error to the Bloomberg Euro Aggregate Treasury Index. Our strategy offers a risk profile similar to the benchmark with significantly better ESG characteristics.
How value recovery instruments (VRIs) can play a positive role in sovereign debt restructurings
In the context of sovereign debt restructurings, VRIs have become increasingly prevalent. We view them as a potentially valuable tool for Eurobond investors to recoup some losses in the event of a sovereign debt default.
2023 UK Stewardship Code Report
Our 2023 UK Stewardship Code Report details how we're supporting good stewardship practices in the UK and beyond.
Sovereign investors optimistic on rate cut expectations
Sovereign investors are optimistic for 2024 despite global geopolitical risks, focusing on private credit and AI for investment opportunities. Discover insights from a survey highlighting their potential allocation strategies and expectations.
Risk & Reward - 4th issue 2023
Subtle differences in factor definitions can profoundly impact performance, and a crucial decision is whether to rely on a single or multiple factor signals. We present an approach that may help investors improve factor premiums by diversifying across signals and removing exposures to unrewarded risks.
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Data as of 31 March, 2024 unless otherwise stated.
This document is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.
Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals, they are subject to change without notice and are not to be construed as investment advice.
