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A reality check for MBS duration risk 

Risk Management , Fixed Income , Models/Client Cases

Empirical duration data can be used to check whether models for mortgage-backed securities are accurately measuring interest-rate risk.

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The changing face of real estate portfolios 

Economic Exposure , Global Investing , Real Estate Investing

Office and retail investments’ historic dominance of commercial real estate portfolios is decreasing, with other property types — including logistics centers, student housing, and data centers — increasing. This evolution highlights how technology and the search for yield have led investors to diversify and seek exposure to other property types.

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Liquidity risk under stress: Beyond bid-ask spreads 

Fixed Income , Models/Client Cases , Risk Management

Risk managers at investment funds are more and more focused on liquidity risk, as regulators have recently issued guidance that increases demands for liquidity stress testing.¹ Although markets are currently considered fairly calm, the 2008 financial crisis showed how liquidity can deteriorate quickly under stressed conditions, resulting in widened bid-ask spreads. But by focusing solely on the change in bid-ask spreads, could investors underestimate their liquidity risk? The often-overlooked market impact² — or the additional cost on top of the bid-ask cost³ for large trades — could also increase significantly, driving transaction costs still higher.

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Same target, different destinations 

Integrated Risk Management , Models/Client Cases

Target-date funds (TDFs) have gained wide adoption in U.S. defined-contribution plans over the last decade, aided by the proliferation of auto-enrollment features and the funds’ presentation as a “set it and forget it” approach.

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Have appraisers been too bullish on retail real estate? 

Real Estate Investing

Appraisers of retail real estate have come in for criticism for excessive bullishness. Media commentary has fixated on the shuttering of shops, while retail-focused real estate investment trusts (REITs) are priced at substantial discounts to the value of their assets.¹ Against this backdrop, many question whether appraisers are overvaluing retail properties. But MSCI data on transacted assets suggests that appraisers haven’t been over-optimistic on the retail sector; and, if anything, they appear to have appraised retail assets more accurately than other property sectors — industrial real estate, in particular.

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Home bias in fixed income: Has it helped or hurt? 

Fixed Income , Global Investing , Integrated Risk Management

Has global diversification historically helped reduce risk in the fixed-income portfolios of U.S. defined-benefit (DB) pension plans? Our backtests show that globalizing bond allocations would have increased risk measured relative to a liability benchmark. For such plans, home bias in bond portfolios would have reduced active risk over the period of our study.

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Three scenarios for Fed rate cuts 

Economic Exposure , Fixed Income , Models/Client Cases

A consensus has emerged that the Federal Reserve will lower rates in the coming months, but investors remain uncertain over the timing and magnitude of the cuts. What impact could three rate-cut scenarios have on markets?

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Where there’s smoke: Cannabis for investors 

Exposure to companies with ties to the cannabis industry raises challenges for investors. Some have sought to keep their portfolios cannabis-free while others have focused on long-term risks and opportunities.

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More than a feeling: Quantifying consumer sentiment 

Factor Research Group , Factor Investing , Factors

Among a flood of alternative data sources, consumer sentiment based on citations online stood out.

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Is there another Woodford waiting to happen? 

Global Investing , Risk Management

When the Woodford Equity Income Fund suspended redemptions on June 3, 2019, it showed how, when a fund’s liquidity profile is misaligned with its shareholder profile and redemption constraints, a single large redemption request can trigger gating.