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Portfolio Management Analytics

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This paper examines the recent trend of adding leverage to fixed income allocations of multi-asset class portfolios of large asset owners. We show that the optimality of adding leverage from a volatility-reduction perspective depends on the correlations between bonds and equities, the relative volatility of bonds versus equities, and the weights of the two asset classes in the portfolio. If correlations between bonds and equities are negative, adding leverage could reduce the volatility of a...

Portfolio Management Analytics

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Barra Aegis

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This Research Insight examines the question of whether currency hedging is a ‘free lunch' of risk reduction and zero expected returns. Using a long history of hedged and unhedged MSCI indices, we find that hedging does not always reduce risk, nor are mean returns zero. Contrary to some prior studies, we find there is no free lunch for the equity investor. Instead, we conclude that the usual, intuitive relationships hold: less risk usually means lower returns, and more risk, higher...

Portfolio Management Analytics

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We investigate the question of whether currency hedging pays off in the long run using data from the hedged and unhedged versions of the MSCI Global Investable Market Indices.  These data allow us to perform comparisons of unusually large breadth (4 base currencies and 40 markets) and history (1987 to 2008). Our research indicates that the answer depends not only on the base currency, market, and hedging horizon, but also on the investor's goals, e.g. risk reduction or return/risk...

Portfolio Management Analytics

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Traditional asset allocation approaches have not provided the full potential of diversification. Here, we introduce a different approach and look at structuring portfolios using risk premia within the traditional asset classes or from systematic trading strategies. We confirm the potential benefits of such an approach by comparing a typical 60/40 equity/fixed income allocation with an equal weighted allocation across eleven risk premia.

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Portfolio Management Analytics Barra Open Optimizer

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Portfolio Management Analytics Barra Open Optimizer

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Barra Open Optimizer

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Portfolio Management Analytics