This Research Insight presents the results of the 2013 MSCI Global Asset Owner Survey, which focuses on understanding the asset allocation processes of institutional asset owners, with a close examination of risk management of the real estate exposure. The findings come from in-person interviews with staff at 40 asset owners from around the world, representing $3.2 trillion in assets, as well as online survey responses from another 40 asset owners, representing $0.7 trillion in assets. These...

Rebalancing a passive portfolio can be costly.  A simple way to minimize costs is to place constraints on turnover, but this approach overlooks differences in liquidity across securities. In this case study, we demonstrate the effect of liquidity information on trading. We develop a hypothetical portfolio following an EMU sovereign bond benchmark and present a selection of rebalancing strategies, each incorporating a different degree of liquidity information.  Our example...

The risk-on, risk-off (RORO) behavior of markets relates to the fluctuating appetite of investors for risky assets. There are periods with optimism in the markets and higher willingness to take risk – this is risk-on. Then after a change in risk perception, risk-aversion increases, and there is a flight-to-safety; risky assets decline in price and investors buy safe-haven investments – this is risk-off. In this paper, we present a way to calculate stressed standard deviation and...

Since the global financial crisis, Dutch pension plans have faced a dual challenge of disappointing asset returns and low interest rates, resulting in a decline of their funding ratios. This has led regulators to consider revised pension funding rules, including the possible introduction of the ultimate forward rate (UFR) in the construction of the yield curve used to discount pensions’ liabilities to their present value. In this Research Insight, we examine the implications for pension...

The term “risk on, risk off” has become a common way to describe the challenges of recent market behavior. In the “risk on” scenario, investors display a greater appetite to buy “risky” assets, thus increasing equity prices. During periods of “risk off” behavior, risk aversion increases and flight-to-quality pushes equity prices lower, while “safe haven” assets outperform. In this paper, we examine how factors in the Barra...

The European Central Bank’s Long-Term Refinancing Operation (LTRO) has altered the relationship between German sovereign yields and German credit default swap (CDS) spreads. In this report, we analyze the “LTRO Effect,” which creates additional demand for German bunds because of their safety as collateral. We propose a hypothetical stress test through the lens of RiskManager that explores the effects of removing the LTRO liquidity program. Our results suggest that the...

Oil prices have risen sharply during the last two years.  Investors concerned about further increases will want to guard against adverse effects on their portfolios.  In this Market Report, we investigate appropriate hedging strategies using the Barra Integrated Model, looking at how asset classes interact in different historical periods (and not simply relying on looking at previous periods of similar oil-price behavior).  The Barra Integrated Model allows investors to...