Alpha – the elixir of life for active managers and the holy grail for investors that select them. Defined as the excess returns above an appropriate benchmark or the ability to improve a portfolio’s risk profile over passive options, it captures the returns attributable to a manager’s skill. Given such skill is a scarce resource,
This article was updated September 2019.
Financial literacy is a complicated and often sensitive topic. In this post, I won’t cover the personal finance aspects of this area (i.e. saving, budgeting and debt management) and instead I’ll focus on the investment and retirement planning side.
Understanding the long-term effects of compounding returns,
In an era of central-bank inflation targeting, what matters most is arguably not inflation, but inflationary pressures. If actual core inflation is contained through tighter monetary policy (as the US Federal Reserve is attempting to do now in the US), it means higher real policy rates and also higher real discount rates for all asset classes,
Human capital in asset allocation
Most readers and investment professionals will accept that “time in the market” beats “timing the market” as the key to wealth generation over the long run. Despite this, we tend not to think too much about the accumulation process, often making investments on the assumption of a static lump sum that doesn’t receive frequent cash injections – i.e.
Should you hold individual bonds and “do it yourself” or a diversified bond fund/ETF? One commonly held belief in investing is that holding individual bonds entails less risk than bond funds, due to the return of principal at maturity. Is this correct? If so, does it matter? Ultimately, it depends on the role bonds play in your portfolio,
BetaShares recently expanded its product range to include our first fixed income/bond fund, the BetaShares Australian Bank Senior Floating Rate Bond ETF (ASX Code: QPON). Due to the level of interest we have had in this fund so far, I thought it would be timely to write a short series on the basics of Bonds.
At a conceptual level, diversification is all about spreading risk and not putting all our eggs in one basket. Quantitatively, as I’ve previously explained, one of the main benefits of diversification is lowering the volatility for a given level of expected return. However, another way of looking at it is that diversification also allows us to improve our returns for a given level of risk,
Last year I addressed the concept of portfolio diversification and how we can assess it quantitatively through the use of return correlations. Just to recap:
Correlation refers to the strength of the co-movement between two assets or portfolios (ranging from -1.0 or perfect negative correlation to +1.0 or perfect positive correlation)
Diversification benefits – where we can lower the return volatility for a given expected return – exist when the correlation between the return of two assets or portfolios is less than perfectly positive (i.e.
We all know the equity market has its ups and downs. Bullish runs are often interrupted by sharp corrections or extended bearish periods, even amid little change in fundamentals. With so much ‘noise’, how should investors be thinking about their equity investments? I studied the historical data to try to get some answers about longer term investing in the share market.
As investors, we’ve often heard about the ‘benefits of diversification’ for investment portfolios and frequently been told ‘not to put all our eggs into one basket’, but have we really thought about what these ideas mean? In this short post, I’ll try to shed some light on this.