Michael Hunstad, Head of Quantitative Strategies, Northern Trust Asset Management discusses common hidden portfolio risks and how to deliver consistent results through a quantitative approach.
Northern Trust’s recently released Risk Report, a four year analysis of 60+ institutional portfolios, dives into common challenges surrounding underperformance and unexpected portfolio results. Portfolio analysis identified factors such as over-diversification, unbalanced proportions of uncompensated risk, and the “cancellation effect” as key drivers in underperformance amongst the study’s pool of institutional portfolios. The study also compares the conventional approach of portfolio construction verses a core-satellite model.
“For investors, it was the fact they simply weren’t getting paid for all the risks they were taking. That’s because portfolios had become overcrowded with uncompensated risks that tended to dilute the potential for excess returns. The result was generally benchmark-like returns – at active management fees,” said Hunstad in the Risk Report’s announcement.
To learn more, register for Northern Trust Asset Management’s webcast: Analysis Reveals 6 Common Drivers of Unexpected Portfolio Results.
Discussion includes:
- Magnitude of uncompensated risks diluting excess returns
- New perspective of the “cancelation effect”
- The most common hidden risks with style tilts
- Over diversification – when diversification backfires