Research, insights, and thought leadership from the GVS community.
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Despite the headwinds of continued rate hikes and growing recession fears, equity markets have risen strongly in 2023 year to date. At the same time, implied volatility has compressed to levels well below long-term averages in major indices such as S&P 500 and the Euro Stoxx 50. In this article, we assess the rally, what may be coming next and how investors can position for different scenarios.
In an environment of increased regulatory scrutiny and fierce competition, Transaction Cost Analysis (TCA) is increasingly important to help firms measure how effectively portfolio orders are being executed. In the derivative space, the TCA concept is fairly new. Due to the nature of a derivative, which is tied to an underlying asset, simple equity style arrival time TCA metrics are not appropriate and often give spurious answers…
We’ve seen increased interest in risk mitigation solutions that combine multiple alternative strategies in an effort to enhance portfolio diversification. We’ve partnered with Paul Murray, an allocator with experience in implementing defensive alternatives for the Future Fund and the Victorian Funds Management Corporation in Australia, to share his insights, along with PIMCO’s perspectives from our partnerships with some of the most sophisticated institutions globally.
Costless Collars are a popular equity hedging strategy, which appeals to investors by its simplicity and a promise of a free lunch: the portfolio appears to be protected and there are no initial cash outlays. In this note we evaluate this hedging approach and offer investors a framework to evaluate costless collars in 2023.
In 2022, 60/40 portfolios suffered as both stocks and bonds sold off and the power of bonds as a diversifier (and, accordingly, a means of reducing portfolio volatility) deteriorated. Meanwhile, inflation exacerbated the issue and eroded real returns. These challenges indicate an increased need for alternatives that offer both diversification to equities and bonds as well as compelling long-term returns
We introduce a framework for the construction of systematic strategy portfolios providing reliable diversification in equity drawdowns. In backtesting, our approach does not suffer from negative carry as option hedges do. Clustering, strategy modulations, and dynamic exposure accentuate the profile.