1 / 22

Strategies for Constructing Downside Risk-Managed Portfolios

This presentation, led by top investment professionals, explores advanced strategies for constructing portfolios that effectively manage downside risk. Key topics include modernized portfolio theory, dynamic asset allocation, and tail risk hedging. Participants will learn about realistic asset distributions, multi-period risk measures, and innovative strategies for sector rotation. The session will offer insights into balancing responsiveness with stability in asset management, as well as how to withstand severe market downturns without sacrificing profit potential.

nieve
Télécharger la présentation

Strategies for Constructing Downside Risk-Managed Portfolios

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Constructing a Portfolio that Successfully Manages Downside Risk Annual Conference May 23, 2012 Jerry A. Miccolis, CFA®, CFP®, FCAS CIO, Brinton Eaton

  2. Constructing a Portfolio that Successfully Manages Downside Risk Company confidential

  3. Constructing a Portfolio that Successfully Manages Downside Risk Juan Carlos Artigas Global Head of Investment Research World Gold Council Company confidential

  4. Constructing a Portfolio that Successfully Manages Downside Risk Kenneth R. Solow, CFP® Chief Investment Officer Pinnacle Advisory Group Company confidential

  5. Constructing a Portfolio that Successfully Manages Downside Risk Erick Goralski Director, Global Markets, ICG Structured Investments Deutsche Bank Securities, Inc. Company confidential

  6. Constructing a Portfolio that Successfully Manages Downside Risk Company confidential

  7. Constructing a Portfolio that Successfully Manages Downside Risk ModernizedModern Portfolio Theory Company confidential

  8. Modernizing MPT • More realistic asset distributions • Non-normal/fat tails • More representative investment horizons • Multi-period/compound returns/risk drag • Rules-based rebalancing • More meaningful risk measures • Shortfall risk • Conditional VaR • More useful dependency measures • Correlations  copulas Company confidential

  9. Asset class relationships are complex Company confidential

  10. We’ve moved from correlations… Company confidential

  11. …to copulas 1 0.5 0 -1 -0.5 0 0.5 1 -0.5 -1 Company confidential

  12. Constructing a Portfolio that Successfully Manages Downside Risk Dynamic Asset Allocation Company confidential

  13. Our sector rotation strategy is an example of DAA • Stable-weighting • Exit/entry signaling • Trade-offs between stability and responsiveness • Three “momentum” algorithms • Each has its own strengths/ weaknesses • Rules that determine which algorithm to use at different times • Dynamically move between responsiveness and stability based on market characteristics • Filtering • To avoid too-frequent trading • Parameters optimized based on 1990-2007 data • Tested “out of sample” with 2008-2011 data Company confidential

  14. How does this strategy compare to the S&P500 Total Return Index? Company confidential

  15. How does this strategy compare to the S&P500 Total Return Index? Company confidential

  16. Constructing a Portfolio that Successfully Manages Downside Risk Enlightened Tail Risk Hedging Company confidential

  17. Our three criteria for an effective buy-and-hold tail risk hedge • Sudden appreciation in severe market downturns • “Severe” denoting sudden, substantial, unexpected decline in market value across most major asset classes, as in 4Q08 (i.e., when diversification doesn’t help) • Appreciation to a degree sufficient to meaningfully offset the decline • No “give-back” during market recovery! • Very low cost • Minimize diversion of funds from productive use • No sacrifice of upside portfolio potential! • Minimal disruption to portfolio • Maintain what works in vastly more likely markets • “Don’t throw the baby out with the bathwater!” Company confidential

  18. Our criteria in a picture Company confidential

  19. Some combinations are promising Company confidential

  20. The combined effect can be game-changing Company confidential

  21. Constructing a Portfolio that Successfully Manages Downside Risk Company confidential

  22. For further reading on these ideas… Company confidential

More Related