RT Journal Article
SR Electronic
T1 Total Portfolio Factor, Not Just Asset, Allocation
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 38
OP 53
DO 10.3905/jpm.2017.43.5.038
VO 43
IS 5
A1 Robert Bass
A1 Scott Gladstone
A1 Andrew Ang
YR 2017
UL https://pm-research.com/content/43/5/38.abstract
AB In this article, the authors present a strategic factor allocation framework across the total portfolio with the motivation of reframing asset allocation decisions along factor dimensions. There are three parts to this factor, not just asset, allocation framework: (1) measuring the factor exposures across all assets, with an emphasis on consistent treatment for liquid and illiquid markets; (2) determining optimal factor exposures based on criteria unique to each investor; and (3) determining the best mix of assets to implement a desired set of factor exposures subject to investor constraints. The authors emphasize the potential benefits of explicit diversification across factors and demonstrate modifications to typical institutional portfolios in factor space that can result in superior risk-return trade-offs.TOPICS: Analysis of individual factors/risk premia, portfolio construction