Tag Archives: diversification

Coronaviral Correlations

Mea culpa: Roughly a month ago I used a dispersion-correlation map to describe how index dynamics can illuminate market movements.  In particular, I reported that since high dispersion seems to be a necessary condition for a bear market, and S&P 500 dispersion levels at the end of February were far below those prevailing in past Read more […]

The Importance of Asset Class Diversification: A Performance Analysis of the S&P MARC 5% Index

Recent selloffs in the equity markets and a significant rise in volatility signal an end to the 11-year bull market (Bye Bye Bull Market: Reaction to Coronavirus). While most broad market domestic equity indices have declined, the performance of the S&P MARC 5% Index (ER) has held up (1.84%). The answer to its resiliency lies Read more […]

Common Confusion

The critics of passive investing are nothing if not creative.  One of their objections to the growth of index funds stems from the putative problem of “common ownership.”  The argument is that index funds’ ownership of many of the competitors in most industries encourages or facilitates collusive behavior.  “[T]he fear is that by owning chunks Read more […]

Concentration Concerns

Readers of this morning’s Wall Street Journal learned (on the front page, no less) that many of the largest investors in the U.S. equity market hold similar portfolios.  “The overlap in the top 50 stockholdings between mutual funds and hedge funds…now stands at near-record levels, a study by Bank of America Merrill Lynch found.”  An Read more […]

S&P MARC 5% ER 2018 Performance: Diversification and Allocation Provide Stability

Despite a rocky start and end to 2018 that negatively affected the performance of all the asset classes within the S&P MARC 5% Excess Return (ER) Index,[1] the index maintained a relatively stable performance throughout the year, although it ended the year in red. When you look at the asset classes in the S&P MARC Read more […]

October Outperformance for the S&P Risk Parity Indices

Traditionally known for spooky ghosts and witches, October was also a scary month for investors. In spite of an end-of-month rally, global stocks recorded their worst monthly loss since 2011, wiping out USD 5 trillion of investor value. Furthermore, investors were spooked by a rare simultaneous drop in bond prices. In short, this was not Read more […]

Outperformance in South Africa and Avoiding Single-Stock Risk

The returns of two liquid equity benchmarks in South Africa with the same target market have been significantly different YTD as of Oct. 26, 2018. Over the period, the S&P South Africa 50 has declined 8.8% while the FTSE/JSE Top 40 has fallen 12.6%—a difference of over 380 bps—a considerable performance gap over a fairly Read more […]

The Importance of Sector Diversification in a Yield-Focused Strategy – Part II

In our previous blog (The Importance of Sector Diversification in a Yield-Focused Strategy – Part I), we highlighted that sector biases in an unconstrained yield strategy could detract from portfolio returns. In this blog, we will show that addressing the sector concentration issue can improve risk-adjusted returns. We constructed three sector-diversified portfolios—the dividend yield portfolio, Read more […]

Proximate Cause

Our colleagues at S&P Global Market Intelligence recently completed a paper analyzing the impact of exchange-traded funds on stock-level pricing.  Their work found that “…the impact of ETF trading is transient and of only a modest magnitude under even extreme assumptions” (my italics).  This conclusion is a rebuttal to critics who believe that the growth Read more […]

The Importance of Sector Diversification in a Yield-Focused Strategy – Part I

Diversification is undoubtedly a central tenet of investing. Many studies[1] [2] [3] have shown that over the long-term investment horizon, maintaining a diversified portfolio can potentially reduce overall risk without compromising expected returns. As such, most market participants strive to form diversified portfolios in order to achieve their desired investment outcomes. There are many ways Read more […]