Category Archive: General Investment

Nov 14

Does higher non-market risk produce higher alpha?…and the possible introduction of the Furey Ratio

Background There’s a widely held belief that to create alpha (i.e. positive returns after adjusting for risk…let’s say market risk), a manager needs to make meaningful bets away from the market. That is, stop being a “benchmark hugger”, concentrate the portfolio with best ideas, and/or move the portfolio holdings away from the benchmark and possibly …

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Nov 07

The importance of asset allocation in Australia…BHB revisited

We’ve all seen various developments in product design from hedge funds to long/short to real return approaches, and then there’s the increased focus on tactical and dynamic asset allocation. You would expect all of this to lead to different drivers of portfolio risk…i.e. away from traditional asset class drivers to market timing, investment selection, and …

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Sep 20

A widely accepted portfolio construction flaw

The typical approach to portfolio construction in the world of financial planning is a 2-step process (of course, this is after the desired risk and return characteristics are settled). The first step is setting asset allocation and the second is investment selection where most of the industry chooses to select from a variety of managed fund strategies. …

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Feb 21

A few simple thoughts on a few not so simple markets

Following are my recent thoughts around markets with many charts to support these views. These views are far from complete but do represent a reasonable summary at this point in time. Income Assets   Source: RBA, Delta Research & Advisory The above left chart suggests the market believes the cash rate is heading towards 1.5% …

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Aug 01

Ramblings about Unconstrained Debt Funds and Portfolio Construction…wonkish and a work in progress

I’ve just returned from a manager research trip in the UK where we visited a variety of strategies from a variety of managers and fortunately for me, with some of the leading thinkers and researchers in the advice industry (hat tip D&G … and I don’t mean Dolce and Gabbana). Several of the managers we …

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Jun 14

Market Cap Weighted Bond Indices…always tough to beat

The common criticism of market-cap weighted bond indices is that they are inefficient because they are obviously weighted towards those with the most debt. Thus indicating that the index potentially carries more risk than necessary, or than we may want in a portfolio, because those with the most debt carry greater default risk than those with very …

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May 09

How often should we rebalance portfolios?

It appears that the financial planning industry is a big believer in rebalancing but a little unsure as to how often. Some accept the automatic quarterly option, some rebalance at the client review, some annual, or even at 13 months to potentially reduce capital gains tax by taking advantage of the 50% CGT discount. Because the …

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May 05

Revisiting Asset Weighted Returns and the Lifecycle Fund

Given the start of MySuper this year, superannuation trustees have released numerous lifecycle funds to satisfy this new legislation. Whilst lifecycle funds have been popular among superannuation trustees, the investment and adviser community haven’t been so complimentary. Either way, lifecycle funds definitely have a place in the investment landscape and they provide an approach to …

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Apr 24

Absolute return investing…a nice goal but disappointment is likely

Absolute return investing, according to many definitions, is about getting positive returns irrespective of the overlying “market” return of whatever asset class the investor is being exposed to. This essentially means that any “absolute” returning investment needs to employ strategies that are independent of market direction. For example, if the market (and it can be …

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Jan 14

Cliff’s Top 10 Peeves…and a couple of my own

I know this is possibly a little old now but one of my recent favourite articles is about to be published in the Financial Analysts Journal, My Top 10 Peeves, by Cliff Asness of AQR. Just click the article name to open and read for yourself. There are quite a few gems in there but …

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