Semivolatility-managed portfolios
Daniel Batista da Silva (U. of Geneva) and M. Fernandes (Getulio Vargas Fnd.)
July 2024
There is ample evidence that volatility management helps improve the risk-adjusted performance of momentum portfolios. However, it is less clear that it works for other factors and anomaly portfolios. We show that controlling by the upside and downside components of volatility yields more robust risk-adjusted performances across a broad set of factors and anomaly portfolios, as well as exchange-traded funds. In particular, we propose semivolatility-managed portfolios that, apart from deleveraging when downside volatility is high, also exploit the higher expected returns in times of good volatility. We find that our semivolatility-managed portfolios that control for both skewness and downside volatility perform better than the original portfolios and extant (semi)volatility management proposals.
Author Archives: James Picerno
Macro Briefing: 6 September 2024
US hiring at companies slowed again in August, dipping to a rise of 99,000 over the previous month, according to the ADP Employment Report. The downshift marks the softest pace since January 2021. “The job market’s downward drift brought us to slower-than-normal hiring after two years of outsized growth,” says Nela Richardson, chief economist, ADP. “The next indicator to watch is wage growth, which is stabilizing after a dramatic post-pandemic slowdown.”
Will Friday’s Jobs Report Alter The Upbeat Q3 GDP Nowcast?
The current lineup of US GDP nowcasts for the third quarter continue to indicate a softer but still solid growth rate. Wall Street is wondering if the upcoming payrolls report for August will change the calculus.
Macro Briefing: 5 September 2024
US job openings in July fell to the lowest level since January 2021, the Labor Department reports. The slide highlights concerns that the labor market’s recent slowdown will continue. The report also strengthens the view that the Federal Reserve will cut interest rates at next week’s policy meeting (Sep. 18). “The labor market is no longer cooling down to its pre-pandemic temperature, it’s dropped past it,” says Nick Bunker, head of economic research at the Indeed Hiring Lab. “Nobody, and certainly not policymakers at the Federal Reserve, should want the labor market to get any cooler at this point.”
Total Return Forecasts: Major Asset Classes | 04 September 2024
A revised long-term performance forecast for the Global Market Index (GMI) fell again in August. The downshift marks a second straight decline in expected return for GMI, an unmanaged benchmark that holds all the major asset classes (except cash) according to market weights via a set of ETF proxies.
Macro Briefing: 4 September 2024
US manufacturing activity continued to contract in August, according to survey data released for the ISM Manufacturing Index. The benchmark ticked higher last month but reflected contraction for the fifth straight month and for the 21st time in the last 22 months. The report also showed that manufacturers continue to pay higher prices for inputs. “Input price pressures moved up modestly to the highest in three months, but they are not so high in our judgment to threaten continued slow disinflation,” says Conrad DeQuadros, senior economic advisor at Brean Capital. “No bar to a September rate cut here but nothing to push the Fed to a half-point cut either.”
Major Asset Classes | August 2024 | Performance Review
US real estate investment trusts led global markets higher for a second straight month in August, based on set of ETFs representing the major asset classes. Another performance redux: commodities were the outlier, posting the only monthly loss, echoing the setback in July.
Macro Briefing: 3 September 2024
US consumer sentiment ticked up in August, marking the first rise after four straight monthly declines, according to the University of Michigan’s survey. “Consumers’ short- and long-run economic outlook improved, with both figures reaching their most favorable levels since April 2024 and a particularly sizable 10% improvement for long-run expectations that was seen across age and income groups,” writes Surveys of Consumers Director Joanne Hsu.
The improvement follows a stronger rise in US personal consumption expenditures in July, the Bureau of Economic Analysis reports. Consumer spending increased 0.5%, picking up from June’s 0.3% advance.
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The Workers Have Left The Building
The Capital Spectator is clocking out early for the Labor Day holiday. The usual schedule of toiling in the editorial salt mines resumes with the morning whistle on Tuesday, Sep. 3. Cheers!
Momentum And Large-Cap Growth Still Lead Equity Factor Returns
Betting against the hottest equity risk factors this year has been a painful strategy, if only in relative terms. But no matter how you slice the numbers, momentum and large-cap growth continue to outperform in 2024, based on a set of ETFs through yesterday’s close (Aug. 27).