Knowledge Base Articles
Part III - Portfolio Construction - The Real World Analysis
In the third and the final part of our “Portfolio Construction” article series, the findings of the previous sections are applied to a broader and more realistic set of assets to evaluate the performance of the proposed methods against more conventional techniques.
Part II - Portfolio Construction - Sampling & Optimisation
The second part of the “Portfolio Construction”-series explores whether introducing parameter uncertainty to the model would improve the out-of-sample performance of the optimal portfolio. Additionally, the article proposes and tests two adjustments to regular utility optimisation.
Part I - Portfolio Construction - Parameter & Model Uncertainty
There is a number of challenges associated with portfolio construction based on historical data. This three-part article series explores some of the most common issues attributed to the model-based portfolio optimization: the sensitivity to changes in data, large variations in portfolio weights and the bad out-of-sample performance.
Davids and Goliaths: The Role of Big Tech in Financial Services
We shouldn’t be surprised that Fintech firms are pioneering the current wave of mass digital adoption. Account management, payments and identity verification are just three areas where digital technology has and continues to augment products. In the past decade, much of the innovation has decoupled from the mainstream. Firms in hubs such as Stockholm and London have been at the forefront of pioneering fresh ideas and translating them into new consumer-centric tools. Now, as the industry matures, mainstream Tech firms are looking to add their heft into the mix: Will they overpower the relative minnows swimming in the Fintech waters, or will their efforts sink without a trace?
Leaning Into the Curve of the Pandemic
As well as COVID, the world must now contend with renewed tensions between the world’s two superpowers and the aftermath of the horrific murder of George Floyd. Conditions are febrile, but it is often in moments of maximum uncertainty and duress that lasting, positive change is made. Policymakers are forced to act in the national interest and interventions such as the furlough and the various COVID loan schemes in the U.K. deserve recognition. Nonetheless, few would have predicted a few months ago that 2020 would prove to be such a seismic event, notwithstanding that it’s US election year. Decisions made now will reverberate for years, if not decades to come. We will stay in our lane here and look at how FinTech can support better outcomes as we come out the other side.
Retirement Planning Post COVID-19
Several months into the COVID-19 outbreak, it would be foolish not to expect significant and lasting change to both our economies and our societies in general. What does this all mean for our retirement plans? For those of us who’s jobs and livelihoods are directly imperilled by the crisis, a brass-tacks evaluation of the likely path for our specific roles and industries will, of course, be imperative. For example, those working in the service sector and in the cultural economy, existential concerns are likely to be paramount and pension planning is likely to be a second-order priority. For those of us fortunate enough to come out of the other side (relatively) unscathed we should directly assess the impact of COVID on our retirement plans – such will be its direct impact. As individuals, we frame our retirement by our age and where we consider ourselves to be in our life journey at that moment in time. We need to generalise here so let’s consider the three broadly accepted stages in turn; accumulation, at-retirement and decumulation.
The Role of Economic Scenario Generators in the Age of Covid-19
Economic Scenario Generators (ESGs) are fundamental to the analysis of ALM problems. Oversimplifying, they are software tools that facilitate simulated analysis of economic variables and risk factors. 6 months ago, no one in the West could have predicted what we are now experiencing. Nonetheless, we are truly now in un-navigated economic territory globally. Stress-testing and scenario analysis comes in a variety of formats and styles. Many are formulated by benchmarking variability on previous events and crises. None of these would have offered any forewarning of the impending magnitude of Covid-19. Specific predictions vary and are challenging to make, but we can be confident in seeing a record single quarter decline in global GDP. ESGs are not crystal balls and would not, ceteris paribus, have provided any direct mitigation to these challenges. However, as we prepare to make our first tentative steps into the ‘new normal’ we must surely re-evaluate the role that enhanced analytics can provide for asset allocators.