Risk Management 2.0

Reducing risk and boosting returns in the year ahead

Geopolitical conflicts, the return of inflation, monetary policy headwinds, and tight correlation between asset classes—these are just some of the risks facing allocators in the year ahead. How can investors mitigate these without incurring excessive losses on their expected returns? The answer lies in the use of the right risk mitigating tools. The insights below compile views from outstanding asset managers, such as Nuveen, Man Group, and Natixis Investment Management, on the topic of reducing risk while boosting portfolio returns.

Dial Up Return, Not Risk: How the Z-Shift Tool Can Aid Investors (Man Group)

The 60/40 is not dead. However, it is in need of improvement from a risk mitigation perspective. Can the Z-Shift Framework help in this regard?

Building Resilient Natural Capital Portfolios Through Diversification (Nuveen)

Diversification is an essential risk mitigation tool for allocators looking to boost their exposure to natural capital assets.

Correlation Matrix Clustering for Statistical Arbitrage Portfolios

We propose a framework to construct statistical arbitrage portfolios with graph clustering algorithms in order to assess novel risk management approaches.

Stock Market Outlook: Time For Diversification (Capital Group)

For compliance reasons, this paper is only accessible in certain geographies

Investors allocating to U.S. equities should consider mitigating the risk of these allocation by diversifying their equity exposure across other geographies.

Can Financial Risks On Insurance Company B/Ss Be Better Managed? (Natixis IM)

For compliance reasons, this paper is NOT accessible in the United States and Canada

Insurance companies are facing a growing list of risks. How can they best mitigate these headwinds while also generating good returns?

Paying for Alpha but Getting Beta? (Apollo)

The authors of this paper demonstrate how integrating less-constrained or unconstrained strategies can enhance long-term risk-adjusted returns for fixed income investors.

Sharpe’s Arithmetic and the Risk Matters Hypothesis (Elm Partners)

The average risk of any active portfolio and its mirror will be greater than the risk of the market portfolio. Find out why this is the case.

When do Treasuries Earn the Convenience Yield? – A Hedging Perspective

This paper demonstrates that the hedging perspective for safe assets is a quantitatively important channel to capture the time-variation in the Treasury convenience yield.

Diversification is Not a Free Lunch (Behavioural Investment)

Diversification requires allocators to own positions that haven’t performed well and that they don’t expect to always perform well.

Global Pension Risk Transfer Market Outlook (Milliman)

Globally, the pension risk transfer market offers an important mechanism for pension schemes seeking to de-risk.