News and publications

30-11-21

Are value stocks a good inflation hedge?

alue stocks are assumed to have a shorter duration than growth stocks and are therefore expected to outperform during times of rising interest rates. Unfortunately, in practice, those correlations tend to be very noisy and less predictable than often presumed. In this article, we study the empirical relationship between the relative performance of the factor and changes in interest rates, inflation, and economic activity in the United States since the 80s.

02-11-21

How many stocks are sufficient for adequate diversification?

A couple of research papers published decades ago taught investors that holding 20 to 30 single stocks results in a sufficiently diversified portfolio. This belief turned out to be stubbornly persistent even though numerous more sophisticated studies have since contested it. This paper looks into different definitions and measures of diversification and empirically assesses the limitations of concentrated portfolios through an approach using active risk minimization.

30-08-21

An efficient frontier for FX hedging

If you have every compared the performance of a typical asset allocation portfolio denominated in Swiss Franc with that of a comparable US Dollar portfolio, you probably got an impression of the power of foreign exchange rates. Still, according to our experience, many investors either neglect FX risk or tackle it in an overly simplistic way. This publication therefore elaborates on different heuristics and introduces a hedging approach based on portfolio optimization.

09-08-21

How effective are protective puts?

Put options are often considered the gold standard in downside risk management. However, protected portfolios tend to behave very differently from textbook illustrations as the simulations and empirical studies in our latest research paper show. Systematic protective put strategies don't just suffer from the cost of the insurance premium but also provide pretty poor protection once drawdowns are not perfectly aligned with the option's lifecycle. In the worst case the strategy delivers lower returns at higher not lower risk.