Welcome to ReSolve Asset Management’s 12 days of investment wisdom mini-series where we explore, from first principles, timeless investment wisdom that will help you maximize your long-term success and possibly change the way you approach the complex arena of investing altogether. From universe selection to portfolio construction, our aim is to offer you a comprehensive framework for a more thoughtful investment approach, to benefit yourself and your clients.
Day 12 - Putting 11 days of Wisdom to work through a Multi-Asset Momentum Case Study
The team has spent the last 11 episodes discussing the importance of asset allocation; the role of systematic “factor” tilts like momentum, value and trend; and how portfolio optimization can act as a force multiplier on long-term performance.
This episode comes full circle by integrating all of the concepts described thus far: Asset Allocation, Risk Balance, Ensemble Methods, Portfolio Optimization and Factor investing, using multi-asset momentum as a case study for this integration.
The team also discusses the importance of process diversification in terms of how to select an optimal multi-asset investment universe; diverse measures of momentum; different methods of portfolio optimization; and holding period diversification.
A fitting conclusion to the 12 Days of Wisdom series, this is one that listeners will not want to miss!
Day 11 – How to Juice as Much Value as Possible from Trend Following - The Cheapest Factor Out There Today
In our second-to-last episode, ReSolve’s newest partner Jason Russell is joining us to share his wisdom on one of the most misunderstood strategies out there. While many investors are aware of the solid returns a simple trend following approach can produce, it is the ability to select from a wide universe of uncorrelated asset-classes (especially currencies and commodities) and to use multiple signals that offer the greatest benefits. These ensemble methods truly maximize the ability to harvest the trend (and any other) premium and add a significant Sharpe ‘bonus’ to portfolios.
Day 10: How Thoughtful Portfolio Optimization Techniques can be a Total Game Changer for Portfolio Results
The Lords of finance have somehow convinced investors that “simple” always beats “complex” in markets. But this is rubbish.
The fact is that every portfolio formation – even the so-called ‘passive portfolio’ - expresses very active beliefs about how markets function, and the relationships between risk and return. It’s critical to understand these relationships in order to choose the optimal method of portfolio construction. Many common techniques such as market cap and equal weighting are profoundly sub-optimal in practice!
In this episode, we discuss ReSolve’s portfolio optimization article series and describe why appropriate portfolio optimization can act as a powerful force-multiplier on long-term performance.
Day 9 – What It Means to be a True Systematic Manager and How to Spot the Lemon’s in your Lineup
So far, we have been discussing a variety of ways to build portfolios and harvest returns, but we haven’t really addressed a fundamental aspect of how we think about portfolio construction. Even though most of us like to think that we will rise to the occasion in the face of a challenge, the reality is that we will most likely sink to the level of our training during those difficult times. In the world of investing, that ‘training’ can be thought of as establishing sound, economically viable and time-tested rules when things are calm (and emotions are in check) and executing them relentlessly through thick and thin. On this 9th day, we get down to what it really means to be a systematic investor.
Day 8 –Why Financial Professionals and their Clients Need to Get Comfortable with Being Uncomfortable in the Coming Decade
Some of the ideas discussed in the last few episodes may raise a few eye-brows, as they force advisors and investors to venture outside of their comfort zones. But consider the alternative. At current valuation levels, US equities and bonds are unlikely to deliver meaningful (or even positive) returns in the coming years. What do we propose? Go global and let go of home-country bias. Diversify across asset-classes, factors and strategies. Embrace tracking-error. The key message on this 8th day is: get comfortable with being uncomfortable.
Day 7 – How to think about your Alternative Sleeve in the Context of Getting the Most Bang for your Buck
And on the 7th day, the Meta Portfolio was created. After analyzing the many sources of return across major global asset classes, we now focus on how to implement different strategies and the most thoughtful way of putting those pieces together. When advisors and investors consider adding liquid alternative strategies to their usual combination of stocks and bonds, it usually represents between 10% and 20% of their overall allocation. But if we really want this sleeve to provide meaningful, differentiated performance to our portfolio, we need to think about capital efficiency.