The Mythology of Rebalancing: A Random Walk down Performance and Risk Management

This research shows that Naïve rebalancing may not be able to improve your strategy’s performance or risk profile, and proposes some alternative ideas for “intelligent” rebalance. In this paper, we will just focus on the robo-advisors and argue that one … Continue reading The Mythology of Rebalancing: A Random Walk down Performance and Risk Management

Diversification in Multi-Factor Portfolios

The debate rages on over the application of valuation in factor-timing methods. Regardless, diversification remains a prudent recommendation. How to diversify multi-factor portfolios, however, remains up for debate. The ActiveBeta team at Goldman Sachs finds new evidence that composite diversification approaches can offer a higher information ratio than integrated approaches due to interaction effects at low-to-moderate factor concentration levels. At high levels, they find that integrated approaches have higher information ratios due to high levels of idiosyncratic risks in composite approaches. We return to old research and explore empirical evidence in FTSE Russell’s tilt-tilt approach to building an integrated multi-factor … Continue reading Diversification in Multi-Factor Portfolios