Read our latest research on diversifying oil exposure, how patent data can be a predictor of equity returns in innovation-based companies, fixed income factor investing and China’s second tier cities and the shift toward a consumption-driven economy.
Institutional investors who are highly sensitive to oil price changes are keen to reduce their risk exposure without explicitly engaging in oil price hedging. We investigate a viable alternative that considers diversifying oil exposure by employing adequate market and style factors. In particular, we present a multi-asset multi-factor solution in which quality and low volatility style factors play a crucial role in mitigating oil risk exposure while increasing overall portfolio diversification.
For firms focusing on innovation, like biotechnology companies, patent data appears to be a promising proxy for intangible assets and, by extension, future stock returns. Within the framework of our multi-factor model, we have analyzed this relationship for different segments of the stock market – small and large caps, growth sectors with high R&D spending and specific industries such as biotechnology and semiconductors. Using sample patent data to construct factors that predict subsequent stock returns, we find that intellectual property (IP) quality and value factors can predict cumulative 6 and 12-month returns of certain industries in the US small cap universe.
How can fixed income factors enhance the more traditional credit rating, industry or duration view of portfolio construction? Can adding a factor element improve the risk-return profile of a multi-credit portfolio? Do fixed income factors make sense in a balanced equity-fixed income allocation? How can investors complement an existing allocation without significantly disrupting the existing portfolio? In this study, we address these four questions often faced by investors.
Recent economic data coming out of China has observers wondering about the momentum of the country’s transition to a consumption-driven economic model. But we are convinced that consumption remains a reliable driver of growth for the world’s second-largest economy – and that the time is ripe for lower-tier cities to play a greater role in driving consumption growth in China.
