Investment Horizons: Issue 6
Welcome to the sixth edition of Investment Horizons, our regular look at the major themes for institutional investors.
We are increasingly flooded with a mass of numbers, from Twitter trends to real-time electricity usage. Investors who want to stay ahead of the game need to harness the power of this deluge. However, just as important is to understand the limitations of data and the science used to manipulate it.
Sentiment in commodities has rarely been worse. Despite that, they are one of the few asset classes that look genuinely cheap, provide a good hedge against inflation, and offer significant diversification benefits. Given relatively inefficient markets, active managers should be well positioned.
Real estate is often seen as offering low correlation to a traditional equity and bond portfolio. It should therefore offer excellent diversification potential, yet investors in direct real estate often show a bias towards their home market. We suggest they would benefit by diversifying overseas.
Many investors want the returns that equities can tive, but cannot live with the risks. We outline how volatility control techniques can reduce the risks while retaining many of the gains. The results will be different, we argue, but the risk adjusted returns should be much improved.
Factor investing is transforming portfolio construction, offering diversification, transparency and economy. The concepts underpin everything from smart beta to alternative risk premia. Factor investing is an important new investment tool, but understanding remains critical.