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BlackRock’s Investment Insights journal presents research conducted by many of the world’s top investment professionals, with in-depth articles supported by rigorous analysis.
The Science of Winning
December 2011
What can investors learn from baseball? Ronald Kahn draws parallels between Michael Lewis' Moneyball and quantitative investing in this issue of Investment Insights.
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Are Hedging Properties Inflated?
How Seven Asset Classes Perform Against Inflation
August 2011
Members of BlackRock’s Multi-Asset Client Solutions team studied seven asset classes to reveal each one’s historical ability to hedge inflation. While conventional wisdom, financial theory, and empirical analysis all line up for a few of these asset classes, the authors’ analysis holds some interesting surprises.
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Overcoming Credit Downgrades: Four Ways to Improve Your Liability Hedge
April 2011
Investors can refine their liability-driven strategy with four approaches to managing downgrades of corporate bonds. According to Dan Ransenberg and Jonathan Hobbs, together these four tactics could have increased a plan's funded ratio by 14% over the past 20 years. With solid investment foundations, these tactics should also benefit investors over the next 20 years and beyond.
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On the Persistence of Style Returns
February 2011
Can style factors be used to generate alpha through equity style tilts? Stan Beckers and Jolly Ann Thomas analyze the return characteristics, persistence and predictability of the MSCI Barra style factors for the US, Europe and Japan. The data reveal some surprising results, including the long-term persistence of certain style returns, which could have been exploited to generate statistically significant active returns in every region.
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Efficient Portfolio Rebalancing in Normal and Stressed Markets
September 2010
Portfolio rebalancing involves a tradeoff between risk and cost. When markets are stressed, the impact of both factors is amplified, as we saw during the credit crisis. Lydia Chan and Sunder Ramkumar identify the most effective approach for rebalancing in normal markets. They also describe an alternative called tracking error rebalancing, which can help reduce risk inexpensively, even in stressed markets.
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Understanding Bond ETF Premiums & Discounts: A Conceptual Framework
April 2010
Why do exchange-traded funds trade sometimes at net asset value and other times at a premium or discount? Does the presence of a premium/discount make them more or less efficient? Matthew Tucker and Stephen Laipply explain the unique circumstances that arise when fixed income securities are held in a fund that trades over a stock exchange.
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Quantitative Equity Investing: Out of style?
March 2010
What does the future hold for quantitative equity investing? Is the poor performance experienced recently a prologue to future returns? Ronald Kahn looks at what drove recent performance disappointments and the factors that are most likely to succeed going forward.
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The New Policy Portfolio: Navigating through good and bad regimes
September 2009
Volatility across the global markets has hurt most investors during the credit crisis. Now many are questioning one of the most well-established outcomes of modern portfolio theory—the policy portfolio. Fred Dopfel considers how investors might better adapt, as markets’ risk and return expectations change.
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Dynamic Portfolio Analysis
April 2009
Portfolio managers balance the costs and benefits of trading as existing information deteriorates and new information arrives, all within a dynamic environment. Richard Grinold presents a framework for analyzing the efficiency of long-short portfolios at using information. “Best Article” in the Tenth Annual Bernstein Fabozzi/Jacobs Levy Awards.
Please contact investmentinsights@blackrock.com if you would like to receive a PDF of this issue.
The North-South Divide: Perspectives on Global Diversification
November 2008
Investors generally acknowledge the value of global diversification, but to what extent does the home bias impact portfolio allocations? Fred Dopfel compares two portfolios that represent “the North” (developed markets) and “the South” (emerging markets) with an average global equity portfolio to gauge expected risk and return.
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The North-South Divide: Perspectives on Global Diversification
November 2008
Investors generally acknowledge the value of global diversification, but to what extent does the home bias impact portfolio allocations? Fred Dopfel compares two portfolios that represent “the North” (developed markets) and “the South” (emerging markets) with an average global equity portfolio to gauge expected risk and return.
The Four Demons
October 2008
Investors must overcome four obstacles to create more efficient portfolios. “The Four Demons” of investing conspire to reduce returns and disguise risk by clouding investors’ views and influencing their portfolio decisions. Kevin Kneafsey exposes these demons and their destructive forces in order to help investors improve portfolio performance.
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Metamathematical Finance: Liquidity risk, model arbitrage, and market complexity
August 2008
As investing has evolved, financial models have become nearly synonymous with markets themselves. But what impact do these models have on the very markets they are intended to exploit? Richard Libby explores how financial models may have contributed to the credit crisis and how we can minimize future crises.
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Forecasting Fund Manager Alphas: The impossible just takes longer
June 2008
Is there a way to make the search for alpha more effective and increase your odds of success? Barton Waring and Sunder Ramkumar offer a framework for estimating active returns, in view of two primary conditions for consistent alpha: the fund manager’s skill at outperforming his benchmark and the investor’s ability to select skillful managers.
Please contact investmentinsights@blackrock.com if you would like to receive a PDF of this issue.
The Future Shock of Retirement
March 2008
Authors Jonathan Cohen, Matthew Scanlan, and Matthew O’Hara investigate the extent to which workers depend on various forms of income and wealth to fund their retirement. Their sensitivity analysis yields some surprising results for various segments of the population, and leads the authors to consider potential solutions for decreasing the likelihood of a shortfall.
Please contact investmentinsights@blackrock.com if you would like to receive a PDF of this issue.
TIPS for Success: Incorporating inflation-linked bonds and derivatives in a portfolio
February 2008
Matthew Crawford discusses the benefits—and challenges—of investing in inflation-protected securities. The author explains how some commonly used active strategies are actually inefficient in generating returns, and details several others that do offer efficient opportunities for outperformance.
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Efficiency Gains of Long-Short Credit Strategies
September 2007
Fred Dopfel and Sunder Ramkumar build on the landmark research from Grinold and Kahn that examined the impact of the long-only constraint on equity strategies. The authors extend important findings from this work in the equity realm to identify similar gains in active fixed income investing.
Please contact investmentinsights@blackrock.com if you would like to receive a PDF of this issue.
The Arithmetic of Fundamental Indexing
June 2007
Fred Dopfel looks at the controversial topic of fundamental indexing. According to the author, rule-based strategies such as fundamental indexing are really a form of active management and should be evaluated as such. The article provides information and guidelines to help evaluate fundamental index strategies.
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Transaction-Cost Analysis as a Source of Alpha
May 2007
Mark Coppejans and Ananth Madhavan consider the benefit to forecasting transaction costs, finding a direct link to alpha. This article looks at the impact of transaction costs, showing how a manager’s ability to forecast costs affects active returns. It also identifies optimal turnover, and shows how transaction-cost forecasting influences fund capacity.
Please contact investmentinsights@blackrock.com if you would like to receive a PDF of this issue.
Don’t Kill the Golden Goose: Why DB retirement plans can and should be saved, and how to do so
February 2007
Barton Waring and Laurence Siegel compare defined benefit and defined contribution plans from both the participant and plan sponsor perspectives. Pension plans may still be the most effective tool for managing retirement funding needs while attracting and retaining top-performing employees, but they need not entail excessive cost and risk.
Please contact investmentinsights@blackrock.com if you would like to receive a PDF of this issue.