Managing Risk Beyond Asset Class Diversification
“The ‘new normal’ in asset allocation must be forward-looking and driven by macroeconomics, said Sébastien Page, Global Head of Client Analytics, Executive Vice-President at PIMCO. He was addressing a CFA Society Toronto luncheon on October 15, 2012 in Toronto’s historic National Club. Traditionally, asset allocation focussed on diversifying according to asset class. In the ‘new normal,’ Page recommends diversifying across risk factors. “Think of asset class as simply a container of risk factors,” he suggested. He gave another metaphor in line with the luncheon crowd. “Think of risk factors as components like proteins, carbohydrates, and fats. An asset class would […]
Global Outlook for Crude Oil: FUD = Fear, Uncertainty, Doubt
In July 2008, Brent crude oil prices reached $148 per barrel “and we saw a lot of pushback from the market but nowadays when I mention $150, there is no pushback,” said Christian O’Neill, senior analyst at Bloomberg Industries during a GARP webinar October 11, 2012. He proceeded to walk the audience through the key factors affecting current supply and demand of this vital commodity. O’Neill’s presentation showed that oil leveraged energy and petroleum (E&P) stocks have strongly outperformed the S&P 500 in the period since March 2009. “Energy has been the beta sector of the market,” said O’Neill, because […]
Risk-Adjusted Performance Measurement. Part 2: Everything But the Kitchen Sink
The risk measures, both ex post and ex ante, that formed the hands-on component of the one-day workshop on risk-adjusted performance measurement at the CFA Society Toronto offices, are covered in greater detail by the book Practical Portfolio Performance Measurement & Attribution. The author (and workshop leader), Carl Bacon, gave the workshop participants a whirlwind tour on September 17, 2012. This continues a recap of the highlights begun in Part 1 of this posting. Simple risk measures are “stand-alone” for a given portfolio (e.g., variability and Sharpe Ratio), or they are calculated in conjunction with another benchmark or portfolio (e.g., […]
Risk-Adjusted Performance Measurement. Part 1: Mind the Expectations
“The guiding principles for risk control,” said Carl Bacon, CIPM, Chairman of Statpro, and former Director of Risk Control and Performance at F&C Investment Management Ltd, “are integration and confidence in data.” Bacon was in Toronto on September 17, 2012 to deliver a one-day workshop on risk-adjusted performance measurement to about a dozen members of the CFA Society Toronto as part of the Society’s continuing education program. He is the author of Practical Portfolio Performance Measurement & Attribution, which went into its second edition in 2008. Performance measurement is the calculation of portfolio return for purposes of comparison against a […]
Madoff Scandal: Three Books, Three Perspectives
The Madoff scandal has spawned a sub-genre of work. In the Toronto Public Library system, there are about twenty entries (books, e-books, DVDs) as of September 2012. It’s already a crowded arena. The books range from those written by victims (The Bag Lady Papers : The Priceless Experience Of Losing It All by Alexandra Penney, 2010) to those written by family (The End Of Normal : A Wife’s Anguish, A Widow’s New Life by Stephanie Madoff Mack, 2011) to those written by persons involved with hunting him down (No One Would Listen, by Harry Markopolos, 2010). Only one mistress has […]
ETFs: Liquidity, Trading & Portfolio Implementation Strategies
When the CFA Society Toronto decides to hold an ETFs seminar in Toronto’s Hockey Hall of Fame, such as it did on the balmy evening of Sept 13, 2012, there is a competition for attention. The venue is full of items of interest to the die-hard fan, such as the shower sandals used by Alexander Ovechkin during the 2011 All-Star game. The lesser fan might stand there, equally transfixed, wondering what the secondary market for used shower sandals could be, even those of Alexander Ovechkin. The ETFs seminar had panel discussions covering three areas: market making, liquidity and trading; utilizing […]
Automated Trading with MATLAB
Stuart Kozola, product manager for computational finance at MathWorks, demonstrated examples of trading systems using MATLAB during a webinar on August 21, 2012. In the first half he discussed how to develop an automated trading decision engine. This meant identifying a successful trading rule, extending the trading rule set, and automating the trading rule selection. In the second half of the webinar he showed implementation of the automated trading, with a caveat that these would require testing prior to integration and execution in the real-life scenario. The worked problem involved Brent oil futures. The first challenge was to identify profitable […]
Executive Compensation: Insights for Investors
If you pick the right people and give them the opportunity to spread their wings and put compensation as a carrier behind it you almost don’t have to manage them. – Jack Welch Catherine McCall and Damian Yu, both principals at Hugessen Consulting , provided a lively overview of issues in executive compensation to an afternoon audience at the CFA Society Toronto offices on August 20, 2012. The duo first outlined the current governance and market environment of compensation, then gave helpful pointers for deciphering management information, and concluded with “hot topics” in the area. Executive compensation deserves the attention […]
Impact of Basel III on Capital Instruments. Part 2: Football vs. Soccer
On August 16, 2012, speaking at a webinar hosted by the Global Association of Risk Professionals (GARP), three panellists gave a perspective on the changes Basel III would wreak on capital instruments. Click here for Part 1. The second speaker, April Frazer, Director of Client Solutions Group at Wells Fargo, gave an overview of the impact of the US Basel III proposal on market dynamics. Due to regulatory limitations that she is subject to as a member of a financial institution, her talk is not reported on here. Steve Sahara, Global Head of DCM Solutions and Hybrid Capital, Crédit Agricole […]
Impact of Basel III on Capital Instruments. Part 1: Ramp-up in Capital
On August 16, 2012, three panellists gave a perspective on the changes Basel III would wreak on capital instruments. It was a highly detailed talk, delivered at high speed, with many qualifications made to the main points, but the sponsoring organization GARP has done a tremendous service to its membership by gathering together these experts. There are some excellent summary slides (link below). This two-part posting showcases the top messages from the three experts, Dwight Smith, April Frazer, and Steve Sahara. In June 2012, three US regulatory bodies (the OCC, the Federal Reserve Board, and the FDIC) proposed three sets of […]