Senior security, floating interest payments and covenant protection make these loans a unique asset class. Their historically steady returns, low volatility and negative correlation with investment-grade fixed income could enhance returns while reducing portfolio volatility.
The author explores the advantages and disadvantages of the outsourced CIO model relative to non-discretionary models and suggests how investors might think about choosing between the two models.
U.S. investors can build international equity by investing directly in overseas markets or by purchasing shares of American depositary receipts. The method selected will have important implications for transaction costs, ongoing fees and benchmark tracking.
In normal markets, typical long/short funds show beta behavior similar to that of long-only funds. With certain specialized short positions, a declining equity market generates both higher profits and higher levels of short exposures. However, these funds may require large liquidity reserves for rebalancing.
Private equity investing is not without its challenges. However, long-term returns argue for exposure to this asset class for sophisticated investors. The most important considerations are structure of the investment program, access to top-tier performers, and knowledge about emerging private equity firms.
Commodity allocations in model portfolios have moved from being exotic to commonplace. The benefits being sought by such allocations typically include protection against inflation and diversification. While commodity allocations can serve both of these roles handily, the manner in which some clients implement these strategies potentially reduces th...
Most investors believe an index-based ETF, ETN or swap will give them an experience similar to the equity markets, where an index-based product represents an unbiased view of the market portfolio, using market capitalization as weights. Unfortunately, this intuition proves misguided due to important differences in how these indexes are constructed.
The authors discuss their criteria for choosing alternative investments, the number of these investments to include in a portfolio, how to allocate strategically and when to change that allocation, and the practical challenges for implementation.
The author examines why investors often embrace misperceptions preventing them from making corrective portfolio reallocations at critical junctures, attempts to put the recent 30-year fixed-income bull market into historical perspective, identifies underlying changes in long-term trends, and discusses how prime consumer lending may help reduce over...
Zero economic activity, confidence and effective policymaking are likely to keep market volatility levels elevated as well as pressure risky asset prices in the near future. However, this uncertainty offers the opportunity for investors to rebalance their portfolios by taking advantage of attractive prices for risk assets.
The authors have contended since late 2008 that the global deleveraging process is likely to occur in multiple stages and last until 2014 or 2015. Investors need to be aware of this cycle in allocating assets and to focus on capital preservation while resisting the temptation to be swayed by short-term volatility.
Investors often overestimate the cyclical risk involved with high-yield bonds. Buying these bonds today with a 12- to 18-month horizon makes sense. An analysis of prior cycles shows that investors with such a horizon or longer can hold on and eventually see the benefits of declining spreads and current income.
A move from one investment manager to another comes with costs that are not easy to identify but should be considered before making the switch. A transition manager can help in assessing the issues and coordinating the logistics and the execution process.
When domestic safe-haven markets no longer seem to provide comfort, investors may want to consider diversifying by adopting a global approach to fixed income and currencies. Desirable countries to consider are those with better credit quality where higher official rates are already priced in and the currency has the potential to rally.
Investment portfolios with diversified allocations exhibit beta spikes, which are commonly believed to be the result of increased portfolio correlation to U.S. equity. However, the fundamental mechanism driving beta to stress levels is the portfolio volatility ratio relative to equities, rather than the portfolio correlation itself.