Bond or fixed income investors talk a lot about yield curves, but what is a yield curve and how can it be used in portfolio management? Generally speaking, a yield curve is a graphical representation (as shown in graph 1) of the relationship between interest rates (or yields) and the maturity dates of debt securities, such as government bonds. It shows how much investors can expect to earn from bonds of varying durations, typically ranging from short-term (e.g., one month) to long-term (e.g., 30 years). The curve is usually plotted with time to maturity on the x-axis and yield on

As every investor knows, buy low, sell high is the way to generate profits in the securities markets. Nevertheless, a lot of (retail) investors are rather buying high and selling low. But why do these investors act this way? From my point of view these investors are driven by greed and fear. They invest late in a trend or in a security with a high upward momentum as they think this trend or momentum will continue and they want to participate from the exceptional return pattern from the past (greed = fear of missing out/FOMO). Unfortunately, past returns are no

Today (September 3, 2024) I have attended an investment conference at which the integration of artificial intelligence (AI) in the portfolio management processes was one of the topics discussed by a fund manager. After seeing the launch of generative AI within the wealth management business of some big banks in the U.S., the review of today’s presentation might be a good reality check with regard to the integration of AI in portfolio management processes. The manager runs three portfolios with the help of artificial intelligence. While two of these portfolios are totally relying on the decisions from AI, the AI

In my article “What is Investment Risk” I discuss the single risks which can appear when investing in the securities markets. That said, the article does not touch upon the fact that investment risk is divided into two broad categories: systematic and unsystematic. Every investment is impacted by both types of risk, though the risk composition will vary across securities. Systematic Risk The systematic risk of a security or asset type is associated with the overall market. This risk affects every security, and it is unpredictable and undiversifiable. Nevertheless, the systematic risk of a single market/asset type within a portfolio can

Since the weightings of the constituents of a portfolio are constantly changing due to the fluctuation of prices in the securities markets, investors have to ensure that the weightings of the single asset types and classes (the asset mix) stays in line with their risk bearing capacity (risk tolerance) and the respective guidelines of their portfolio. The process of realigning the portfolio with the guidelines or benchmark of a portfolio is called rebalancing. That said, rebalancing is a simple and well-known technique to help the investor to stick to his investment plan by regularly aligning the constituents of a portfolio

Strategic asset allocation (SAA) defines the long-term average positioning of a portfolio with regard to the different asset types (for example 60% equities + 40% bonds) and sometimes also with regard to the different asset classes (for example 5% of the portfolio can be held in below investment grade bonds). Conversely, tactical asset allocation (TAA) defines the short- or medium-term exposure to the asset types and classes based on the market assessment and the derived return expectations for the different asset classes by the portfolio manager. With regard to this, the TAA can lead to over- or underweights of regions,

One of the most frequently cited doctrines in the investment world is the basic rule of diversification—the distribution of invested assets across different securities and asset classes. That said, there are two completely different opinions on this subject. While one group of investors says that you should not put all your eggs in the same basket in order to avoid large losses, others say that an investor must put all eggs in one basket in order to maximize returns. However, the investor using the latter strategy needs to pay very close attention to his portfolio at all times since a

A lot has been said about the future perspective for portfolio managers with the increasing possibilities of artificial intelligence (AI). Sometimes I get the impression that AI will replace more or less everyone in asset management and especially in portfolio management. But can such an assumption pass a reality check? It is true that a lot of work in portfolio management can be taken over by AI, but I don’t think that AI will replace portfolio managers at all. In fact, the fund management industry has been using algorithms for decades to determine valuations of markets and securities. These algorithms

Looking back on the year 2020, it can be said that no investor has seen such a year before, even if one looks back to the Great Depression or World Wars I and II. The year started off with fears about a possible war between North Korea and the U.S., an upcoming trade war between the U.S. and China, and a possible hard Brexit. In a normal year, these geopolitical tensions would have put enough pressure on the markets to cause a major downturn. But in mid-February the coronavirus, which has been seen as a local problem in China before,

The European investment management industry is in an overall transition mode if you look at the trends and underlying dynamics of the industry. In fact, there are so many trends that will change the face of the industry over the next few years that the inescapable conclusion is this will be a decade of great change, and European investment management will look totally different by 2030. First of all, we have seen a number of mergers and acquisitions in all parts of the value chain of the industry over the last few years, and this is a trend that will

Watch leading experts from two of Canada’s premier financial institutions as they discuss the benefits of integrating ESG factors into portfolio management — both for assessing investment risks and opportunities, as well as attracting assets. Rosalie Vendette, ESG Practice Leader for Desjardins and Judy Cotte, Head of Corporate Governance & Responsible Investment for RBC Global Asset Management were interviewed by Tim Kiladze of the Globe & Mail. The Lipper Fund Awards bring together top performers, asset and wealth management visionaries, experts and influencers. As part of the Awards program, we hold a brief ‘fireside chat’ to discuss market trends, critical

At the beginning of the second quarter of 2017, only the Consumer Staples and Industrials sectors earn an Attractive-or-better rating. Our sector ratings are based on the aggregation of our fund ratings for every ETF and mutual fund in each sector. See last quarter’s Sector Ratings here. Investors looking for sector funds that hold quality stocks should look no further than the Consumer Staples and Industrials sectors. These sectors house the highest rated funds. Figures 4 through 7 provide more details. The primary driver behind an Attractive fund rating is good portfolio management, or good stock picking, with low total