The document discusses a new approach to asset allocation that focuses on diversifying risk factors rather than asset classes. It argues that traditional approaches underestimate market dynamics and fail to hedge "fat tail" risks. The new approach takes a forward-looking, macroeconomic view and aims to diversify risks across equity, bond, currency and commodity risk factors. It also notes that one extremely bad year can erase gains from multiple good years, emphasizing the importance of hedging rare but severe loss events.
Global Edge Capital Management provides a summary of managed futures and their investment program. Managed futures aim to reduce portfolio risk through diversification and the potential for returns in various economic conditions. However, managed futures also carry higher costs, leverage risk, and liquidity risk compared to other investments. Global Edge implements a systematic trading program across over 100 futures markets using short, medium, and long-term strategies. They employ strict risk management with individual trade and sector exposure limits. The minimum investment is $200,000 with fees of 2% management and 20% performance.
Using Mean-Variance Optimization in the Real World: Black-Litterman vs. Resam...SSA KPI
The document compares two techniques for making mean-variance optimization (MVO) more usable in real-world asset allocation: Black-Litterman and resampling. Both techniques help address limitations of MVO, such as unintuitive portfolios caused by estimation error. The experiment found that while both techniques led to more diversified portfolios than historical inputs alone, Black-Litterman created the most intuitive portfolios for practical use.
The document provides an overview of the J.P. Morgan Mozaic Fixed Income Index (USD), which seeks synthetic exposure to developed fixed income markets through long and short positions in underlying futures indices. It rebalances monthly based on momentum, taking positions in the best performing constituents over the prior 66 days that have returned over -1% in the prior 10 days. Positions are leveraged to target a 4% annual volatility. If interest rates have risen over 66 days, it takes short positions in US and Eurodollar futures indices. Back-tested returns show the Index outperformed bonds from 2002-2012 with lower volatility, though past performance is not indicative of future results.
The document compares asset class investing to indexing. It notes that while indexing is preferable to active management, indexes have drawbacks that can reduce their effectiveness in delivering pure asset class returns. Asset class investing, developed by Dimensional Fund Advisors, attempts to minimize costs and maximize returns through strategies like efficient trading, maintaining consistent exposure to asset classes, and avoiding high prices caused by index reconstitutions.
EAS Genesis Fund Fact Sheet - January 2010jackfgonzalez
The document summarizes the EAS Genesis Fund, a flexible allocation mutual fund that aims to generate positive returns over 3-year periods while capturing less downside than the market. It allocates across conservative, moderate, and aggressive sub-strategies and uses tactical overlays to hedge and potentially generate alpha. As of January 2010, it has outperformed the S&P 500 since inception in 2008 with less volatility, while its current asset allocation is 36% in a conservative hybrid strategy and 14% in cash.
Vanguard's presentation on XXXXXXXXX at the PensionSource Fund Manager Confer...PensionSource
This document discusses indexing and passive investing strategies. It argues that most actively managed funds underperform their benchmarks after fees. Studies show that the majority (70-90%) of funds lag their indexes over long periods of time across different regions and asset classes. The presentation emphasizes that costs are the primary determinant of returns, and low-cost index funds are likely to outperform most active strategies. It promotes Vanguard's index funds as a better option for investors compared to higher-cost actively managed alternatives.
RS Group develops cloud-based financial applications for options and derivatives traders. Their suite of tools allows traders to perform large-scale analysis more efficiently using cloud computing. This includes analyzing large portfolios to develop timely hedging strategies. RS Group has designed risk management and analysis software over 10 years. Their software manages risk, calculates hedges and simulations over the cloud, and allows for statistical studies and large-scale analyses. Screenshots show portfolio positions, skew analysis, correlation analysis, beta analysis, and simulation of positions under changing prices and volatility.
Global Edge Capital Management provides a summary of managed futures and their investment program. Managed futures aim to reduce portfolio risk through diversification and the potential for returns in various economic conditions. However, managed futures also carry higher costs, leverage risk, and liquidity risk compared to other investments. Global Edge implements a systematic trading program across over 100 futures markets using short, medium, and long-term strategies. They employ strict risk management with individual trade and sector exposure limits. The minimum investment is $200,000 with fees of 2% management and 20% performance.
Using Mean-Variance Optimization in the Real World: Black-Litterman vs. Resam...SSA KPI
The document compares two techniques for making mean-variance optimization (MVO) more usable in real-world asset allocation: Black-Litterman and resampling. Both techniques help address limitations of MVO, such as unintuitive portfolios caused by estimation error. The experiment found that while both techniques led to more diversified portfolios than historical inputs alone, Black-Litterman created the most intuitive portfolios for practical use.
The document provides an overview of the J.P. Morgan Mozaic Fixed Income Index (USD), which seeks synthetic exposure to developed fixed income markets through long and short positions in underlying futures indices. It rebalances monthly based on momentum, taking positions in the best performing constituents over the prior 66 days that have returned over -1% in the prior 10 days. Positions are leveraged to target a 4% annual volatility. If interest rates have risen over 66 days, it takes short positions in US and Eurodollar futures indices. Back-tested returns show the Index outperformed bonds from 2002-2012 with lower volatility, though past performance is not indicative of future results.
The document compares asset class investing to indexing. It notes that while indexing is preferable to active management, indexes have drawbacks that can reduce their effectiveness in delivering pure asset class returns. Asset class investing, developed by Dimensional Fund Advisors, attempts to minimize costs and maximize returns through strategies like efficient trading, maintaining consistent exposure to asset classes, and avoiding high prices caused by index reconstitutions.
EAS Genesis Fund Fact Sheet - January 2010jackfgonzalez
The document summarizes the EAS Genesis Fund, a flexible allocation mutual fund that aims to generate positive returns over 3-year periods while capturing less downside than the market. It allocates across conservative, moderate, and aggressive sub-strategies and uses tactical overlays to hedge and potentially generate alpha. As of January 2010, it has outperformed the S&P 500 since inception in 2008 with less volatility, while its current asset allocation is 36% in a conservative hybrid strategy and 14% in cash.
Vanguard's presentation on XXXXXXXXX at the PensionSource Fund Manager Confer...PensionSource
This document discusses indexing and passive investing strategies. It argues that most actively managed funds underperform their benchmarks after fees. Studies show that the majority (70-90%) of funds lag their indexes over long periods of time across different regions and asset classes. The presentation emphasizes that costs are the primary determinant of returns, and low-cost index funds are likely to outperform most active strategies. It promotes Vanguard's index funds as a better option for investors compared to higher-cost actively managed alternatives.
RS Group develops cloud-based financial applications for options and derivatives traders. Their suite of tools allows traders to perform large-scale analysis more efficiently using cloud computing. This includes analyzing large portfolios to develop timely hedging strategies. RS Group has designed risk management and analysis software over 10 years. Their software manages risk, calculates hedges and simulations over the cloud, and allows for statistical studies and large-scale analyses. Screenshots show portfolio positions, skew analysis, correlation analysis, beta analysis, and simulation of positions under changing prices and volatility.
Transaction cost expenditures and the relative performance of mutual funds(13)bfmresearch
This document analyzes trading costs for a sample of 132 equity mutual funds between 1984 and 1991. It finds that trading costs, including spread costs and brokerage commissions, average 0.78% of fund assets per year and vary substantially across funds. Higher trading costs are negatively associated with fund returns, even after controlling for expense ratios. Turnover explains some but not all of the variation in trading costs. Fund investment objectives are related to average trading costs but variation within objectives is greater than across objectives.
1) The document discusses emerging fixed-income managers and whether their age or assets under management is a better indicator of performance.
2) It analyzes monthly return data for 317 fixed-income firms from 1985-present to determine if younger or smaller firms outperform their larger counterparts.
3) The research aims to address gaps in prior studies that focused only on equities and hedge funds, and used assets under management rather than age to define emerging managers.
Examination of hedged mutual funds agarwalbfmresearch
Hedge funds have traditionally only been available to accredited investors while providing lighter regulation and stronger performance incentives compared to mutual funds. Recently, some mutual funds have adopted hedge fund-like strategies but remain subject to tighter regulation. This study examines the performance of these "hedged mutual funds" relative to both hedge funds and traditional mutual funds. It finds that despite using similar strategies as hedge funds, hedged mutual funds underperform due to their tighter regulation and weaker incentives. However, hedged mutual funds outperform traditional mutual funds, with the superior performance driven by those with managers having hedge fund experience.
Morningstar fund investor_fees_predictorbfmresearch
The document summarizes research on how expense ratios and Morningstar star ratings can predict the future success of mutual funds. Some key findings:
- Funds in the lowest expense ratio quintile significantly outperformed those in the highest quintile in terms of total returns and survival rates across all asset classes except international stocks.
- Funds with the highest Morningstar ratings (5 stars) generally had higher total returns and survival rates than 1-star funds, though expense ratios were a slightly better predictor of success.
- The star rating beat expense ratios as a predictor in less than half of asset class comparisons between 2005-2010, taking into account funds that failed or were liquidated.
1) The study investigates how fund size affects performance in the active money management industry. Specifically, it analyzes whether fund returns decline as fund size increases.
2) The results show that both gross and net fund returns decline as lagged fund size increases, even after accounting for various performance benchmarks and fund characteristics. This suggests that larger fund size erodes performance.
3) However, controlling for its own size, a fund's performance does not deteriorate as the size of the family it belongs to increases. This indicates that scale itself does not necessarily harm performance, depending on how the fund is organized.
Should investors avoid active managed funds baksbfmresearch
This document summarizes a study that analyzes mutual fund performance from an investor's perspective. The study develops a Bayesian method to evaluate mutual fund manager performance using flexible prior beliefs about managerial skill. The method is applied to a sample of over 1,400 equity mutual funds. The study finds that even with extremely skeptical prior beliefs about manager skill, some allocation to actively managed funds is justified. The economic importance is quantified by estimating the portfolio share and certainty equivalent loss from excluding all active managers.
The S&P Persistence Scorecard seeks to analyze whether past mutual fund performance is indicative of future performance. It tracks the consistency of top performers over consecutive periods and measures performance persistence through transition matrices. The key findings are that very few funds consistently repeat top-half or top-quartile performance over consecutive periods. Additionally, screening for only top-quartile funds may be inappropriate as a healthy number of future top performers come from the second and third quartiles in prior periods. The bottom quartile funds have a high probability of being merged or liquidated and screening these out may be reasonable.
(1) Raiffeisen Capital Management provides global asset allocation strategies and manages over EUR 30 billion in assets across European and emerging market equities and fixed income.
(2) Some of their current investment strategies include being long in equities and short in government bonds, reducing credit risk in bond markets, and moving back into emerging markets equities and commodities after recent declines.
(3) They emphasize unconstrained global asset allocation strategies and finding undervalued European stocks, believing risk is achieving investment objectives rather than short-term price declines.
C.F. Yam, a regional general manager of an insurance company, will give a public lecture on the value of actuaries for management. In the lecture, he will discuss how actuaries can add business value through effective communication and investment knowledge. He will also address how actuaries may need to further develop practical skills to help service the growing annuity market and influence business success. The event details include the date, time, location and registration information for the lecture at the University of Hong Kong.
Risk Appetite: A new Menu under Basel 3? Pieter Klaassen (UBS - Firm-wide Risk Control & Methodology) voor het Zanders Risicomanagement Seminar 1 november 2012
Clarus' presentation on "Inside the Strategies" at the PensionSource Fund Man...PensionSource
Clarus Investment Solutions provides four risk-graduated portfolio strategies for use in defined contribution pension plans. The strategies range from Cautious to Active, with different allocations to equities, bonds, property, commodities and absolute return funds. The portfolios are designed to offer lower volatility than a standard managed fund while maintaining reasonable returns. Clarus monitors the portfolios continuously and rebalances them periodically to maintain the desired risk levels and diversification. The strategies have outperformed the ILAC Consensus benchmark since 2009 with lower volatility, demonstrating the benefits of diversification.
Securities are offered through Raymond James Financial Services, Inc., member FINRA/SIPC, an independent broker/dealer, and are not insured by FDIC, NCUA or any other financial institution insurance, are not deposits or obligations of the financial institution, are not guaranteed by the financial institution, and are subject to risks, including the possible loss of principal. Raymond James is not affiliated with the financial institution or the investment company. Material prepared by Raymond James for use by its advisors.
This document discusses common investment challenges such as randomness of returns, picking winning stocks, timing the market, picking active managers, and the costs of indexing. It then outlines an investment approach focused on strategic partnerships with institutional managers, academically sound portfolio construction, keeping costs low, and HonorVise portfolios. Key points include reviewing evidence that stock returns are random, individual stock picking is difficult, market timing rarely works, and costs are lower with index funds. The approach focuses on dimensions of expected returns including size, value, and market factors.
The document provides an introduction to the F&C Lifestyle Funds, which are whole of market, risk-rated multi-manager funds designed for financial adviser use. The funds combine risk profiling with multi-manager asset allocation across equities, fixed income, property and cash. Each fund invests in 15-30 underlying funds from multiple managers to provide diversification. The funds are actively managed by Thames River Capital to match the volatility target for the client's risk profile. Rebalancing ensures the funds remain aligned to the client's risk level over time without tax liability from underlying fund sales.
FMP Market Themes and Outlook January 2013kmyoung1
This document provides a market outlook and investment themes for 2013 from FMPartners. It summarizes current economic conditions and sees modest GDP growth in the US. The main investment themes highlighted are global fiscal concerns, divergent growth between developed and emerging markets, credit dislocation, and inflationary pressures. The market outlook projects the S&P 500 will end 2013 around 1561 based on analyst forecasts. Key drivers of growth are seen as the ongoing US housing recovery, employment gains, manufacturing expansion, and domestic energy production. Equities are assessed as fairly valued currently based on dividend and debt yield comparisons. Risks in fixed income include the constrained credit environment and global deleveraging.
The document summarizes a session from the Society of Actuaries Spring Meeting on building and maintaining effective risk dashboards. The session discussed what risk dashboards are, their purpose in providing consolidated risk reporting across an enterprise. Keys to success include integrating different risk types into a single dashboard and ensuring executive sponsorship. The session also provided a case study on how risk dashboards could have helped identify risks in the subprime mortgage crisis. Implementation challenges included issues with data availability, integration into decision making processes, and legal implications of disclosing risk information.
The document provides an overview of portfolio management services (PMS) offered by Excel MF. It discusses how a PMS can help align client objectives, balance different fund manager styles, provide single point reporting and track markets/asset allocation on behalf of clients. It notes that even when individual funds underperform, a good PMS can overcome this through market calls. Scheme selection is critical, with over a 100% gap in returns between top and worst performers. The PMS invests using an in-house fund selector tool and deploys a dynamic asset allocation approach across conservative, balanced and aggressive plans starting from Rs. 5 lakhs with different fee options. Pioneer Investcorp is an integrated financial services firm that also
This document summarizes key concepts from a doctoral degree in business management from Pasundan University in 2013. It covers several frameworks for strategic management developed between the 1960s and 2000s, including SWOT analysis, the strategic planning matrix, strategic relationship management, and the 3-CA's model. It also outlines strategic decision-making processes and factors that influence industry profitability and competitive advantage.
Pension Risk Transfer Index: November 2011-Dietrich & AssociatesJay Dinunzio
The Dietrich Pension Risk Transfer Index tracks the relative attractiveness of annuitizing accrued pension obligations by considering the funded status level, current and historical annuity rates, and annuity rates compared to treasury and corporate bonds. In November 2011, the index level was 86.45, indicating annuitization was in the "plan/monitor" range of attractiveness. Lower annuity rates and spreads drove the index lower despite gains in pension funding levels. Annuities remain attractive for frozen plans with short investment horizons and reduced return assumptions.
This document summarizes a presentation on pricing variable annuity guaranteed living benefits given in 2009. It discusses how recent market trends have impacted pricing, including large losses announced by insurers, increased reserves, and changes to VA product designs. It also examines factors affecting pricing, such as lower interest rates, higher volatility, increased hedging costs, and higher asset correlations. The presentation argues that pricing assumptions may need to be adjusted to account for these changes in the economic environment.
This document summarizes a presentation on pricing guarantees for variable annuities given recent market conditions. It discusses how lower interest rates, lower expected equity returns, and higher realized volatility are challenging pricing assumptions. Many insurance companies have had to increase reserves, accelerate write-offs, and modify products with higher fees or reduced guarantees due to losses. Hedging guarantees is also very difficult in this environment of increased volatility, basis risk, and funding costs. Proper pricing now requires considering economics rather than just accounting impacts.
The document discusses Intact Financial Corporation's acquisition of AXA Canada. The key points are:
1) The acquisition strengthens IFC's position as the largest property and casualty insurer in Canada, increasing its premiums by over 40%.
2) The acquisition is financially compelling with an expected internal rate of return of 20% and accretion to net operating income per share.
3) Combining the two companies creates a leading P&C insurer in Canada and provides numerous diversification and synergistic benefits.
Transaction cost expenditures and the relative performance of mutual funds(13)bfmresearch
This document analyzes trading costs for a sample of 132 equity mutual funds between 1984 and 1991. It finds that trading costs, including spread costs and brokerage commissions, average 0.78% of fund assets per year and vary substantially across funds. Higher trading costs are negatively associated with fund returns, even after controlling for expense ratios. Turnover explains some but not all of the variation in trading costs. Fund investment objectives are related to average trading costs but variation within objectives is greater than across objectives.
1) The document discusses emerging fixed-income managers and whether their age or assets under management is a better indicator of performance.
2) It analyzes monthly return data for 317 fixed-income firms from 1985-present to determine if younger or smaller firms outperform their larger counterparts.
3) The research aims to address gaps in prior studies that focused only on equities and hedge funds, and used assets under management rather than age to define emerging managers.
Examination of hedged mutual funds agarwalbfmresearch
Hedge funds have traditionally only been available to accredited investors while providing lighter regulation and stronger performance incentives compared to mutual funds. Recently, some mutual funds have adopted hedge fund-like strategies but remain subject to tighter regulation. This study examines the performance of these "hedged mutual funds" relative to both hedge funds and traditional mutual funds. It finds that despite using similar strategies as hedge funds, hedged mutual funds underperform due to their tighter regulation and weaker incentives. However, hedged mutual funds outperform traditional mutual funds, with the superior performance driven by those with managers having hedge fund experience.
Morningstar fund investor_fees_predictorbfmresearch
The document summarizes research on how expense ratios and Morningstar star ratings can predict the future success of mutual funds. Some key findings:
- Funds in the lowest expense ratio quintile significantly outperformed those in the highest quintile in terms of total returns and survival rates across all asset classes except international stocks.
- Funds with the highest Morningstar ratings (5 stars) generally had higher total returns and survival rates than 1-star funds, though expense ratios were a slightly better predictor of success.
- The star rating beat expense ratios as a predictor in less than half of asset class comparisons between 2005-2010, taking into account funds that failed or were liquidated.
1) The study investigates how fund size affects performance in the active money management industry. Specifically, it analyzes whether fund returns decline as fund size increases.
2) The results show that both gross and net fund returns decline as lagged fund size increases, even after accounting for various performance benchmarks and fund characteristics. This suggests that larger fund size erodes performance.
3) However, controlling for its own size, a fund's performance does not deteriorate as the size of the family it belongs to increases. This indicates that scale itself does not necessarily harm performance, depending on how the fund is organized.
Should investors avoid active managed funds baksbfmresearch
This document summarizes a study that analyzes mutual fund performance from an investor's perspective. The study develops a Bayesian method to evaluate mutual fund manager performance using flexible prior beliefs about managerial skill. The method is applied to a sample of over 1,400 equity mutual funds. The study finds that even with extremely skeptical prior beliefs about manager skill, some allocation to actively managed funds is justified. The economic importance is quantified by estimating the portfolio share and certainty equivalent loss from excluding all active managers.
The S&P Persistence Scorecard seeks to analyze whether past mutual fund performance is indicative of future performance. It tracks the consistency of top performers over consecutive periods and measures performance persistence through transition matrices. The key findings are that very few funds consistently repeat top-half or top-quartile performance over consecutive periods. Additionally, screening for only top-quartile funds may be inappropriate as a healthy number of future top performers come from the second and third quartiles in prior periods. The bottom quartile funds have a high probability of being merged or liquidated and screening these out may be reasonable.
(1) Raiffeisen Capital Management provides global asset allocation strategies and manages over EUR 30 billion in assets across European and emerging market equities and fixed income.
(2) Some of their current investment strategies include being long in equities and short in government bonds, reducing credit risk in bond markets, and moving back into emerging markets equities and commodities after recent declines.
(3) They emphasize unconstrained global asset allocation strategies and finding undervalued European stocks, believing risk is achieving investment objectives rather than short-term price declines.
C.F. Yam, a regional general manager of an insurance company, will give a public lecture on the value of actuaries for management. In the lecture, he will discuss how actuaries can add business value through effective communication and investment knowledge. He will also address how actuaries may need to further develop practical skills to help service the growing annuity market and influence business success. The event details include the date, time, location and registration information for the lecture at the University of Hong Kong.
Risk Appetite: A new Menu under Basel 3? Pieter Klaassen (UBS - Firm-wide Risk Control & Methodology) voor het Zanders Risicomanagement Seminar 1 november 2012
Clarus' presentation on "Inside the Strategies" at the PensionSource Fund Man...PensionSource
Clarus Investment Solutions provides four risk-graduated portfolio strategies for use in defined contribution pension plans. The strategies range from Cautious to Active, with different allocations to equities, bonds, property, commodities and absolute return funds. The portfolios are designed to offer lower volatility than a standard managed fund while maintaining reasonable returns. Clarus monitors the portfolios continuously and rebalances them periodically to maintain the desired risk levels and diversification. The strategies have outperformed the ILAC Consensus benchmark since 2009 with lower volatility, demonstrating the benefits of diversification.
Securities are offered through Raymond James Financial Services, Inc., member FINRA/SIPC, an independent broker/dealer, and are not insured by FDIC, NCUA or any other financial institution insurance, are not deposits or obligations of the financial institution, are not guaranteed by the financial institution, and are subject to risks, including the possible loss of principal. Raymond James is not affiliated with the financial institution or the investment company. Material prepared by Raymond James for use by its advisors.
This document discusses common investment challenges such as randomness of returns, picking winning stocks, timing the market, picking active managers, and the costs of indexing. It then outlines an investment approach focused on strategic partnerships with institutional managers, academically sound portfolio construction, keeping costs low, and HonorVise portfolios. Key points include reviewing evidence that stock returns are random, individual stock picking is difficult, market timing rarely works, and costs are lower with index funds. The approach focuses on dimensions of expected returns including size, value, and market factors.
The document provides an introduction to the F&C Lifestyle Funds, which are whole of market, risk-rated multi-manager funds designed for financial adviser use. The funds combine risk profiling with multi-manager asset allocation across equities, fixed income, property and cash. Each fund invests in 15-30 underlying funds from multiple managers to provide diversification. The funds are actively managed by Thames River Capital to match the volatility target for the client's risk profile. Rebalancing ensures the funds remain aligned to the client's risk level over time without tax liability from underlying fund sales.
FMP Market Themes and Outlook January 2013kmyoung1
This document provides a market outlook and investment themes for 2013 from FMPartners. It summarizes current economic conditions and sees modest GDP growth in the US. The main investment themes highlighted are global fiscal concerns, divergent growth between developed and emerging markets, credit dislocation, and inflationary pressures. The market outlook projects the S&P 500 will end 2013 around 1561 based on analyst forecasts. Key drivers of growth are seen as the ongoing US housing recovery, employment gains, manufacturing expansion, and domestic energy production. Equities are assessed as fairly valued currently based on dividend and debt yield comparisons. Risks in fixed income include the constrained credit environment and global deleveraging.
The document summarizes a session from the Society of Actuaries Spring Meeting on building and maintaining effective risk dashboards. The session discussed what risk dashboards are, their purpose in providing consolidated risk reporting across an enterprise. Keys to success include integrating different risk types into a single dashboard and ensuring executive sponsorship. The session also provided a case study on how risk dashboards could have helped identify risks in the subprime mortgage crisis. Implementation challenges included issues with data availability, integration into decision making processes, and legal implications of disclosing risk information.
The document provides an overview of portfolio management services (PMS) offered by Excel MF. It discusses how a PMS can help align client objectives, balance different fund manager styles, provide single point reporting and track markets/asset allocation on behalf of clients. It notes that even when individual funds underperform, a good PMS can overcome this through market calls. Scheme selection is critical, with over a 100% gap in returns between top and worst performers. The PMS invests using an in-house fund selector tool and deploys a dynamic asset allocation approach across conservative, balanced and aggressive plans starting from Rs. 5 lakhs with different fee options. Pioneer Investcorp is an integrated financial services firm that also
This document summarizes key concepts from a doctoral degree in business management from Pasundan University in 2013. It covers several frameworks for strategic management developed between the 1960s and 2000s, including SWOT analysis, the strategic planning matrix, strategic relationship management, and the 3-CA's model. It also outlines strategic decision-making processes and factors that influence industry profitability and competitive advantage.
Pension Risk Transfer Index: November 2011-Dietrich & AssociatesJay Dinunzio
The Dietrich Pension Risk Transfer Index tracks the relative attractiveness of annuitizing accrued pension obligations by considering the funded status level, current and historical annuity rates, and annuity rates compared to treasury and corporate bonds. In November 2011, the index level was 86.45, indicating annuitization was in the "plan/monitor" range of attractiveness. Lower annuity rates and spreads drove the index lower despite gains in pension funding levels. Annuities remain attractive for frozen plans with short investment horizons and reduced return assumptions.
This document summarizes a presentation on pricing variable annuity guaranteed living benefits given in 2009. It discusses how recent market trends have impacted pricing, including large losses announced by insurers, increased reserves, and changes to VA product designs. It also examines factors affecting pricing, such as lower interest rates, higher volatility, increased hedging costs, and higher asset correlations. The presentation argues that pricing assumptions may need to be adjusted to account for these changes in the economic environment.
This document summarizes a presentation on pricing guarantees for variable annuities given recent market conditions. It discusses how lower interest rates, lower expected equity returns, and higher realized volatility are challenging pricing assumptions. Many insurance companies have had to increase reserves, accelerate write-offs, and modify products with higher fees or reduced guarantees due to losses. Hedging guarantees is also very difficult in this environment of increased volatility, basis risk, and funding costs. Proper pricing now requires considering economics rather than just accounting impacts.
The document discusses Intact Financial Corporation's acquisition of AXA Canada. The key points are:
1) The acquisition strengthens IFC's position as the largest property and casualty insurer in Canada, increasing its premiums by over 40%.
2) The acquisition is financially compelling with an expected internal rate of return of 20% and accretion to net operating income per share.
3) Combining the two companies creates a leading P&C insurer in Canada and provides numerous diversification and synergistic benefits.
The document discusses Intact Financial Corporation's acquisition of AXA Canada. The key points are:
1) The acquisition strengthens IFC's position as the largest property and casualty insurer in Canada, increasing its premiums by over 40%.
2) The acquisition is financially compelling with an expected internal rate of return of 20% and accretion to net operating income per share.
3) Combining the two companies creates a leading P&C insurer in Canada and provides numerous diversification and synergistic benefits.
Intact Financial Corporation is Canada's largest personal and commercial property and casualty insurer, with $7 billion in annual premiums written. It has leading market shares in several Canadian provinces and consistently outperforms the industry on key metrics like combined ratio and return on equity. Intact has a diversified business mix across personal and commercial lines as well as regions. It expects to continue outperforming peers in 2013 through scale advantages, underwriting expertise, and a balanced investment portfolio.
- Private equity is a risky asset, but private equity investments are not necessarily so. Every type of private equity investment vehicle has a different risk profile.
- Diversification is important in private equity as it significantly reduces risk. A direct investment has a 30% probability of total loss, while a fund has a very small probability and a fund-of-funds has a small probability of any loss.
- Most investors invest in less risky vehicles like funds and funds-of-funds due to constraints. Risk is measured using the standard deviation of returns rather than volatility due to the lack of an efficient private equity market.
Intact Financial Corporation is acquiring AXA Canada to become the largest P&C insurer in Canada. The acquisition strengthens Intact's position with over $6.5 billion in annual premiums and enhances its expertise in commercial lines and in provinces like Quebec. The combination improves diversification and is expected to outperform the industry's return on equity by at least 500 basis points annually due to synergies and underwriting performance. The acquisition maintains Intact's strong financial position and is financially compelling with an internal rate of return of 20% and accretion to earnings per share.
This document summarizes a study examining 125 equity mutual funds that closed to new investment between 1993 and 2004. The study tests three hypotheses about why funds close: 1) The "good steward" hypothesis argues funds close to restrict inflows and maintain performance, and will perform well after reopening. 2) The "cheap talk" hypothesis posits closing has no real cost if fees increase and existing investors contribute, compensating managers. 3) The "family spillover" hypothesis claims closing diverts attention to other funds in the same family. The study finds little support for good steward performance, but evidence managers raise fees consistent with cheap talk, and little family benefit except briefly around closure.
Standard & poor's 16768282 fund-factors-2009 jan1bfmresearch
This document summarizes a study by Standard & Poor's on factors that predict investment fund performance. The study analyzed both qualitative factors like fund size, expenses, and age as well as quantitative metrics like Jensen's alpha and information ratio. The key findings were:
- For developed markets, larger funds with lower expenses tended to outperform. But for emerging markets, smaller funds did better due to differences in liquidity.
- Jensen's alpha and information ratio best predicted future performance of developed market equity funds over shorter time periods.
- Past performance was informative over 2 years but less so over 1 year due to noise. Fund selection should focus on factors predicting shorter term outperformance.
Performance emergingfixedincomemanagers joi_is age just a numberbfmresearch
1) Younger fixed-income managers tend to outperform older, more established managers in terms of gross returns. Returns are significantly higher for emerging managers in their first year and first five years compared to later years.
2) The study examines 54 fixed-income managers formed since 1985 that had majority employee ownership. Most were formed before 2000, when barriers to entry increased.
3) Business risk is low for emerging managers, as only 6.8% of the 88 examined managers are no longer in business. Higher first-year and early-period returns for emerging managers indicate they provide alpha during their hungry startup phase.
This document analyzes different categories of active mutual fund management based on measures of Active Share and tracking error. It finds that the most active stock pickers have outperformed their benchmarks after fees, while closet indexers and funds focusing on factor bets have underperformed after fees. Performance patterns were similar during the 2008-2009 financial crisis. Closet indexing has become more popular recently. Fund performance can be predicted by cross-sectional stock return dispersion, favoring active stock pickers when dispersion is higher.
The document summarizes findings from the Standard & Poor's Indices Versus Active Funds (SPIVA) Scorecard, which compares the performance of actively managed mutual funds to relevant benchmarks. Some key points:
- Over the past 3 years, the majority (over 50%) of actively managed large-cap, mid-cap, small-cap, global, international, and emerging market funds underperformed their benchmarks.
- Over the past 5 years, indices outperformed a majority of active managers in nearly all major domestic and international equity categories based on equal-weighted returns. Asset-weighted averages also showed underperformance in 11 out of 18 domestic categories.
- For fixed income funds, over 50% under
This document summarizes research on the relationship between portfolio turnover and investment performance. Recent studies have found no evidence that higher portfolio turnover leads to lower returns, as was previously thought. Trading costs have declined over time, and portfolio turnover is not a good proxy for actual trading costs, which depend more on trade size and type of security traded. A 2007 study directly estimated trading costs and found no clear correlation between costs and returns. The author's own analysis of mutual funds from 2007-2008 also found little relationship between turnover and performance. Therefore, advisors should not assume higher turnover means lower returns.
This document discusses using active share and tracking error as measures of portfolio manager skill. It defines active share as the percentage of a fund's portfolio that differs from its benchmark index. Tracking error measures systematic factor risk by capturing how much a fund's returns vary from its benchmark. Research shows funds with high active share and moderate tracking error tend to outperform on average. The document examines how active share and tracking error can help identify skillful managers by focusing on their portfolio construction process rather than just past returns.
This document is a guide to the markets published by JPMorgan that provides data and analysis across various asset classes including equities, fixed income, international markets, and the economy. It includes sections on returns by investment style and sector for equities, economic indicators and drivers, interest rates and other data for fixed income, international market returns and valuations, and asset class performance and correlations. The guide contains over 60 charts and analyses global and domestic financial trends and investment opportunities.
The document discusses whether the concept of "Alpha" is a useful performance metric for investors. It makes two main arguments:
1) Alpha alone does not determine if a portfolio has superior risk-adjusted returns, as portfolio volatility and correlation to benchmarks also influence risk-adjusted returns.
2) Alpha is dependent on leverage - a higher reported Alpha could simply be due to using leverage rather than superior investment skill.
The document concludes that Alpha is a misleading performance measure and not suitable as the sole metric, especially for investors concerned with total risk and returns rather than just a single return component.
Fis group study on emerging managers performance drivers 2007bfmresearch
This study examined the performance of emerging investment managers over three years ending in 2006. It found that:
1) For large cap managers, increased firm assets were negatively correlated with risk-adjusted returns for core and growth strategies, but not for value. This may be because increased assets led to less concentrated core portfolios, lowering returns.
2) For small cap managers, risk-adjusted returns were highest for firms with less than $500 million in assets, possibly due to added resources like analysts. Returns leveled off between $500 million and $1 billion, and declined above $1 billion.
3) Having more research analysts was consistently positively correlated with higher risk-adjusted returns across strategies, while the impact
The document discusses Barclays' process for evaluating and selecting investment managers. It states that identifying the right asset allocation and implementing it properly are both important for achieving investment goals. The process involves both science, through a formal and structured methodology, and art, by applying judgment and philosophy. Barclays aims to identify managers most likely to perform well through rigorous due diligence and ongoing monitoring. The paper will explain Barclays' comprehensive approach to manager analysis, selection, and review.
Active managementmostlyefficientmarkets fajbfmresearch
This survey of literature on active vs passive management shows:
1) On average, actively managed funds do not outperform the market after accounting for fees and expenses, though a minority do add value.
2) Studies suggest some investors may be able to identify superior active managers in advance using public information.
3) Investors who identify superior active managers could improve their risk-adjusted returns by including some exposure to active strategies.
This document summarizes recent academic research on active equity managers who deliver persistent outperformance. It discusses studies finding that:
1) While the average equity manager underperforms after fees, a minority of managers have demonstrated persistent outperformance that cannot be attributed to chance alone.
2) Managers with higher "active share" (the degree to which their portfolio composition differs from the benchmark) tend to generate greater risk-adjusted returns.
3) Managers with lower portfolio turnover and a focus on strong stock selection, rather than market timing, are more likely to outperform over time.
The document evaluates how Brown Advisory's investment approach aligns with the characteristics identified in these studies as being associated with persistent
The document discusses China's transition to a consumer-driven economy. It provides analysis from CLSA China Macro Strategist Andy Rothman on trends in China's economy including the declining importance of exports, strong growth in domestic consumption, increasing incomes driving spending, and continued growth in infrastructure investment. The analysis suggests China's economy remains healthy and growing despite slowing external demand.
This report provides an analysis of defined contribution retirement plans based on 2010 Vanguard recordkeeping data. Some key findings include:
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The document discusses the benefits of exercise for mental health. Regular physical activity can help reduce anxiety and depression and improve mood and cognitive function. Exercise causes chemical changes in the brain that may help protect against mental illness and improve symptoms.
This study explores performance persistence in mutual funds. The authors find:
1) Funds that perform relatively poorly compared to peers and benchmarks are more likely to disappear, indicating survivorship bias can be relevant in mutual fund studies.
2) Mutual fund performance persists from year to year on a risk-adjusted basis, though much of the persistence is due to repeated underperformance relative to benchmarks.
3) Persistence patterns vary dramatically between time periods, suggesting performance is correlated across managers due to common strategies not captured by risk adjustments. Poorly performing funds also persist instead of being fully eliminated by the market.
This study examines persistence in mutual fund performance over 1962-1993 using a survivorship-bias-free database. The author finds:
1) Common factors in stock returns and differences in mutual fund expenses explain almost all persistence in mutual fund returns, with the exception of strong underperformance by the worst-performing funds.
2) The "hot hands effect" documented in prior literature is driven by the one-year momentum effect in stock returns, but individual funds do not earn higher returns from actively following momentum strategies after accounting for costs.
3) Expenses have a negative impact on performance of at least one-for-one, and higher turnover also negatively impacts performance, reducing returns by around 0.95
This paper examines the relationship between mutual fund manager ownership stakes in the funds they manage and the performance of those funds. The author hypothesizes that greater manager ownership will be positively associated with fund returns and negatively associated with fund turnover, as higher ownership would better align manager and shareholder interests by reducing agency costs. Using a dataset of manager ownership disclosures from 2004-2005, the author finds that funds with higher manager ownership had higher returns and lower turnover, supporting the hypotheses. However, manager ownership was not related to a fund's tax burden.
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Sebastien page-pimco
1. The Myth of Diversification: Risk
Factors vs. Asset Classes
Sébastien Page, CFA
Executive Vice President
April 2011
PIMCO Canada will retain PIMCO LLC as a subadvisor.
PIMCO Canada Corp., 120 Adelaide Street West, Suite 1901, Toronto, ON MSH 1T1, 416-368-3350, 866-341-3350
Asset Allocation Solutions for the New Normal
Traditional Asset Allocation New Normal Asset Allocation
Approaches Approach
Forward looking and driven by
Backward looking and statistically driven
macroeconomics
Focus on asset class diversification Focuses on risk factor diversification
Underestimate the dynamic nature of the Focuses on the secular and the cyclical
market investment horizon
Use volatility as sole risk measure, thus
Seeks to explicitly hedge “fat tail” risk
ignoring “fat tails”
Refer to Appendix for additional investment strategy and risk information.
1 asset_allocation_phil_05
2. Viewing Risk Through a Different Lens
Stocks
Equity Value / Equity
Size Momentum Volatility Liquidity …
(Developed) Growth Industry
Bonds
Yield Fixed
Nominal Real Equity
Curve Income Volatility Liquidity
Duration Duration … (Developed)
Duration Spreads
2 2cs_FE_Risk_Factor_Short
Risk Factor vs. Asset Class Correlations
Average Cross Correlations
(March 31, 1997 - January 31, 2011)
70%
59%
60%
Full Sample
50% Quiet
Turbulent*
40%
Percent (%)
40%
30%
30%
20%
10%
4% 3% 4%
0%
Risk Factor Correlations Asset Class Correlations
Hypothetical example for illustrative purposes only.
SOURCE: Windham Portfolio Advisors; PIMCO DataStream; Size, Value, and Momentum from Barra.
Risk Factors: Equity, Size, Value, Momentum, Duration, 2-10 Slope, 10-30 Slope, EM Spread, Mortgage Spread, Corp Spread, Swap Spread, Real Estate, Commodity.
Asset class correlations calculated using the following indices: MSCI US Small Cap 1750, MSCI US Large Cap 300, MSCI Emerging Markets, MSCI World ex-US, BarCap U.S.
Aggregate Index, Dow-Jones U.S. Select REIT Index, S&P GSCI Index
* To calculate turbulence, we measured the multivariate distance between N return observations scaled by the corresponding risk factor covariance matrix. The 15% most turbulent
months were considered turbulent. All other months were labeled as “quiet.”
Refer to Appendix for additional correlation, hypothetical example, and index information.
3
3. Asset Class Diversification Does Not Equate To
Risk Diversification
As of December 31, 2010
Market Value Allocation
Risk Allocation
(NACUBO >$1 billon portfolio)
Cash
Distressed Domestic
3% Commodity Other
Natural Debt Equities
7% 1%
Resources 3% 14% Currency
7%
3%
Int'l Equities
Venture
8%
Capital Corporate
5% Spread
EM Equities 10%
4%
Private
Equity Domestic
13% Bonds
9%
Int'l Bonds Equity
Hedge Funds 1% 79%
24% Real Estate
8%
SOURCE: 2009 NACUBO-Commonfund Study of Endowments, PIMCO.
Hypothetical example for illustrative purposes only.
Refer to Appendix for additional hypothetical example and portfolio analysis information.
4 asset_allocation_review_19
Left Tail Events Tend to Occur More Frequently
than “Normal” Distributions Predict
Normal Distribution
“Fat-Tail” Distribution
Frequency of Events
Higher
Probability
Of Big
Losses
Losses Gains
SOURCE: PIMCO, Benoit Mandelbrot.
Sample for illustrative purposes only.
6 asset_allocation_review_12
4. One “Bad Year” Can Erase the Gains From Many
“Good Years”
10 Year Annual Returns
Factoring in a 10th “Bad Year”
-15% -20% -25%
8% 5.4%* 4.8% 4.1%
10% 7.2% 6.5% 5.9%
Average Returns for
9 “Good Years”
12% 8.9% 8.2% 7.6%
14% 10.7% 10.0% 9.3%
SOURCE: PIMCO
Hypothetical example with hypothetical returns for illustrative purposes only
* Sample calculation can be applied to all examples: 5.44% = ((1+8%)^9*(1-15%))^0.1 – 1. If calculated using the formula given this would be the annual return of a portfolio that
generates 8% /year for 9 years and followed by a -15% drawdown in the 10th year.
Refer to Appendix for additional hypothetical example information.
7 asset_allocation_review_17
Explicit Hedging of Tail Risk
Return Distribution Based on Portfolio Factor Exposures
+ 100 bps spent on 1 year S&P 500 Put with 25%
Return Distribution Based on Portfolio Factor Exposures Implied Volatility
NAC UBO Portfolio NAC UBO Hedged
Normal Distribution Normal Distribution
Probability Density
Probability Density
-50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50%
Annual Return Annual Return
Assumptions: S&P 500 put option with 1 year maturity, 25% S&P 500 index implied volatility, risk free rate of zero. Solve for the price that is equal to the tail risk
budget (1%) and simulate the returns. If the value of the index falls below strike, then put option value rises and adds to portfolio returns
SOURCE: 2009 NACUBO-Commonfund Study of Endowments, PIMCO.
Using NACUBO portfolio as of December 31, 2010
Hypothetical example for illustrative purposes only.
Refer to Appendix for additional hypothetical example, index, investment strategy, risk, and portfolio analysis information.
8 asset_allocation_review_24
5. Regime Specific Correlations
AUD-Equity and JPY-Equity Correlations as a Function of Equity Returns
100%
80% AUD
60%
40%
20%
Correlation
0%
-20%
JPY
-40%
-60%
-80%
-100%
-10% -5% 0% 5% 10%
Equity Return Threshold
(Equities Returning x Percent or Less in a Month)
SOURCE: Equity returns from Barra’s equity factor, AUD and JPY returns from Windham Portfolio Advisor
Hypothetical example for illustrative purposes only.
Using monthly data from March 1994 to December 2009
Different time periods will produce different results.
Refer to the Appendix for additional correlation, hypothetical example and risk information.
9
Asset Allocation Solutions for the New Normal
Traditional Asset Allocation New Normal Asset Allocation
Approaches Approach
Forward looking and driven by
Backward looking and statistically driven
macroeconomics
Focus on asset class diversification Focuses on risk factor diversification
Underestimate the dynamic nature of the Focuses on the secular and the cyclical
market investment horizon
Use volatility as sole risk measure, thus
Seeks to explicitly hedge “fat tail” risk
ignoring “fat tails”
Refer to Appendix for additional investment strategy and risk information.
10 asset_allocation_phil_05
7. Appendix
Index Description
Barclays Capital Global Aggregate (USD Hedged) Index provides a broad-based measure of the global investment-grade fixed income markets. The three major
components of this index are the U.S. Aggregate, the Pan-European Aggregate, and the Asian-Pacific Aggregate Indices. The index also includes Eurodollar and
Euro-Yen corporate bonds, Canadian Government securities, and USD investment grade 144A securities.
Barclays Capital U.S. Aggregate Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment
grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.
These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis.
Barclays Capital U.S. TIPS Index is an unmanaged market index comprised of all U.S. Treasury Inflation Protected Securities rated investment grade (Baa3 or
better), have at least one year to final maturity, and at least $250 million par amount outstanding. Performance data for this index prior to 10/97 represents returns
of the Barclays Capital Inflation Notes Index.
The Cambridge Associates U.S. Private Equity Index is based on returns data representing nearly two-thirds of leveraged buyout, subordinated debt, and special-
situations partnerships since 1986.
The Cambridge Associates LLC U.S. Venture Capital Index is based on returns data compiled on funds representing over 80% of the total dollars raised by U.S.
venture capital managers between 1981 and 2001. Cambridge Associates LLC calculates the pooled net time-weighted return by quarter from March 31, 1981
through the most recent quarter. The pooled means represent the time-weighted rates of return calculated on the aggregate of all cash flows and market values
as reported by the General Partners to Cambridge Associates LLC in their quarterly and annual audited financial reports. Net returns exclude all management
fees, expenses and performance fees that take the form of a carried interest.
The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 actively traded “blue chip” stocks, primarily industrials, but including financials and
other service-oriented companies as well. The components, which change from time to time, represent between 15% and 20% of the market value of NYSE
stocks.
The Dow Jones UBS Commodity Total Return Index is an unmanaged index composed of futures contracts on 19 physical commodities. The index is designed to
be a highly liquid and diversified benchmark for commodities as an asset class. Prior to May 7, 2009, this index was known as the Dow Jones AIG Commodity
Total Return Index.
13 asset_allocation_app_01
Appendix
The HFRI Fund Weighted Composite Index is comprised of over 2000 domestic and offshore constituent funds. All funds report assets in USD and report net of
fees returns on a monthly basis. There is no Fund of Funds included in the index and each has at least $50 million under management or have been actively
trading for at least twelve months.
JPMorgan GBI Global (Unhedged) is an unmanaged market index representative of the total return performance in U.S. dollars on an unhedged basis of major
world bond markets.
The MSCI EAFE (Morgan Stanley Capital International Europe, Australasia, Far East Index) is an unmanaged index of over 900 companies, and is a generally
accepted benchmark for major overseas markets. Index weightings represent the relative capitalizations of the major overseas markets included in the index on
a U.S. dollar adjusted basis.
MSCI EAFE Net Dividend Index (USD Unhedged) is an unmanaged index of issuers in countries of Europe, Australia, and the Far East represented in U.S.
Dollars on an unhedged basis. The index does not reflect deductions for fees, expenses or taxes.
The Morgan Stanley Capital International Emerging Markets Index is an unmanaged index that measures equity market performance in the global emerging
markets. As of May 2005, the Emerging Markets Index (float-adjusted market capitalization index) consisted of indices in 26 emerging countries: Argentina,
Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru,
Philippines, Poland, Russia, South Africa, Taiwan, Thailand, Turkey, and Venezuela.
The Morgan Stanley Capital International World Index is an unmanaged market-weighted index that consists of over 1,200 securities traded in 22 of the world’s
most developed countries. Securities are listed on exchanges in the US, Europe, Canada, Australia, New Zealand, and the Far East. The index is calculated
separately; without dividends, with gross dividends reinvested and estimated tax withheld, and with gross dividends reinvested, in both U.S. Dollars and local
currency.
The NCREIF (National Council of Real Estate Investment Fiduciaries) Property Index is a quarterly time series composite total rate of return measure of
performance of a very large pool of individual commercial real estate properties acquired in the private market for investment purposes only.
The S&P 500 Index is an unmanaged market index generally considered representative of the stock market as a whole. The index focuses on the Large-Cap
segment of the U.S. equities market.
It is not possible to invest directly in an unmanaged index.
14 asset_allocation_app_01