In a new research paper published in the Winter 2016 issue of the Journal of Portfolio Management, entitled "Diversified or Concentrated Factor Tilts?", ERI Scientific Beta has highlighted the limitations of purely factor-driven approaches that aim to concentrate portfolios in a small number of stocks that are highly exposed to one or more risk factors, in order to obtain, over the long term, the best possible return associated with these risk factors. Since it neglects diversification of specific risk, this factor concentration approach exposes the investor to high idiosyncratic volatility and ultimately delivers risk-adjusted performance that is inferior to that of well-diversified factor or multi-factor indices.
Overview
In a new research paper published in the Winter 2016 issue of the Journal of Portfolio Management, entitled "Diversified or Concentrated Factor Tilts?", ERI Scientific Beta highlighted the limitations of purely factor-driven approaches that aim to concentrate portfolios in a small number of stocks that are highly exposed to one or more risk factors, in order to obtain, over the long term, the best possible return associated with these risk factors. Since it neglects diversification of specific risk, this factor concentration approach exposes the investor to high idiosyncratic volatility and ultimately delivers risk-adjusted performance that is inferior to that of well-diversified factor or multi-factor indices.
Slides
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Host
The webinar was hosted by Felix Goltz, Head of Applied Research, EDHEC-Risk Institute and Research Director, ERI Scientific Beta. Dr. Goltz carries out research in empirical finance and asset allocation, with a focus on alternative investments and indexing strategies. His work has appeared in various international academic and practitioner journals and handbooks. He obtained a PhD in finance from the University of Nice Sophia-Antipolis after studying economics and business administration at the University of Bayreuth and EDHEC Business School.
Date/Time
19 April, 2016 at 5.00pm CET / 11.00am EST.