Style Allocation Research Articles

On the investigation of investment style allocation under the OCIO structure: Evidence from the Korean stock market

Purpose Given the importance of style allocation strategy under the outsourced chief investment officer (OCIO) structure, the authors examine the validity of style allocation strategies in the Korean stock market. The authors find that external investment agencies can improve performance by using newly suggested investment styles such as high dividend yield and low volatility as well as traditional styles. In addition, the authors find that the style combination strategies create economically large and statistically significant returns. Finally, empirical results indicate that factor timing strategies suggested in this study can improve the reward-to-risk ratio. In sum, the empirical findings indicate that external investment agencies under the OCIO structure can improve performance using active style allocation strategies.

Internal constraints to business performance in black-owned small to medium enterprises in the construction industry

Background: There has been an upsurge of black-owned small to medium enterprises (SMEs) in the construction industry in South Africa. However, many of them continue to face various challenges, which adversely affect their business performance. Aim: This article investigated the internal constraints influencing business performance in black-owned SMEs in the South African construction industry. Setting: The study was conducted using a purposive sample of 13 professionals employed by five black-owned SMEs operating in the construction industry in Gauteng Province, South Africa. Design, methodology and approach: A qualitative approach was followed involving semi-structured in-depth interviews with the selected participants. The collected data were analysed using content analysis. Results: After the content analysis, five constraints to business performance emerged: occupational health and safety, human resources, leadership style, workplace communication and resource allocation. Conclusion: The study offers insights on issues affecting the performance of black-owned SMEs in the construction industry in South Africa. Its findings facilitate the identification of the primary drivers of underperformance and are thus useful for the diagnosis of business performance challenges in SMEs operating in the construction industry.

Fund selection, style allocation, and active management abilities: Evidence from funds of hedge funds’ holdings

AbstractThis study examines whether funds of hedge funds (FOHFs) provide superior before‐fee performance through managers’ fund selection, style allocation, and active management abilities. Using reported holdings of Securities and Exchange Commission–registered FOHFs, we find that FOHF managers have fund selection abilities, as hedge funds held by FOHFs outperform their style indices and over half of the individual hedge funds in the Lipper Trading Advisor Selection System (TASS) database. We also find that FOHF managers add value through active management of FOHFs’ holdings, while evidence on their style allocation abilities is mixed. Our findings suggest that FOHFs generate superior before‐fee performance and that FOHF managers’ skillset is broader than previously documented. Thus, our study helps explain why FOHFs continue to survive and suggests that FOHF fee structure reform merits consideration.

Macro-financial regimes and performance of Shariah-compliant equity portfolios

This study proposes the Markov Regime Driven Style allocation (MRDS) strategy for Shariah-compliant portfolio construction, a forward-looking methodology that merges economic forecasting with Shariah-compliant investment principles. By using Shariah-compliant equities from the S&P 500 universe over the period 1986–2016, we find that a Shariah-compliant investor can achieve stable performance by dynamically allocating across investment styles determined from the macro-financial information, as compared with various single style strategies. The MRDS improves both the level and stability of relative performance. This strategy also successfully mitigates risk by reducing volatility, value-at-risk, and portfolio drawdowns.

Macro-Financial Regimes and the Performance of Dynamic Shariah-Compliant Equity Portfolios

Shariah-compliant equity investors have the freedom to choose an investment style provided their selection of equities follows approved Shariah screening guidelines. This study proposes the Markov Regime Driven Style allocation (MRDS) strategy for portfolio construction, a forward-looking methodology that merges economic forecasting with Shariah-compliant investment principles and backtests its out-of-sample performance. By using Shariah compliant equities from the S&P 500 universe over the period 1986-2016, we find that a Shariah-compliant investor can achieve stable performance by dynamically allocating across investment styles determined from the macro- financial information, as compared with market capitalization weighted, fundamental value weighted, equal-weighted or low-risk weighted strategies. The MRDS improves both the level and stability of relative performance. This strategy also successfully mitigates risk by reducing the volatility, value at risk, and drawdowns.

Fund Selection and Style Allocation Abilities: Evidence from Funds of Hedge Fundss Holdings

This study examines whether funds of hedge funds (FOHFs) provide superior before-fee performance through managers’ fund selection, style allocation, and active management abilities. Using reported holdings of SEC-registered FOHFs, we find that FOHF managers have fund selection abilities, as hedge funds held by FOHFs outperform their style indices and over half of the individual hedge funds in the TASS database. We also find that FOHF managers add value through active management of FOHFs’ holdings, while evidence on their style allocation abilities is mixed. Our findings suggest that FOHFs generate superior before-fee performance and that FOHF managers’ skillset is broader than previously documented. Thus, our study helps explain why FOHFs continue to survive and suggests that FOHF fee structure reform merits consideration.

The exception to linguists and fundamentalists

Praise be to Allah, peace and blessings be the best all the people Mohammed Secretary and Haddat right and the leaders of all creatures and after: Looks at the knowledge of the language being one of the terms of the diligent worker with assets of Islamic jurisprudence to ete necessary to know the holy book of God, which is the first source of Islamic law, which touches the daily conduct practical for every Muslim such as prayer, fasting, transactions, etc., it is known that worships rely on verbal text and acts and statements and approve the infallible up to taxpayers by speech inaudible or illegible after the era of the infallible; and if so, must know the Arab speech styles; because the Koran was revealed. It is the manner of allocation methods and means some of what covered the speech with being compared with his output falls within the style allocation among other types, including its relevant wording of Commons, such as the condition and character and purpose exception including Mainvsal for the term of Commons such as mental and auditory, when a speech exception is devoted to the language, which will be the area of research, God Almighty. Find the three sections was taking exception to the first part, and idiomatically definition language when linguists and fundamentalists when it reported the views of some linguists and fundamentalists. The second section, entitled exception to the Staff stated inter exception clause exception vacuum, and the types of exception, the terms of the exception. The third Almiges was titled Placements in exception ensures the exception of the number and the exception of a few sentences, and finally was the finale, which contained the most important findings. Alla ask the Almighty to reconcile

الاستثناء عند اللغويين والأصوليين

Praise be to Allah, peace and blessings be the best all the people Mohammed Secretary and Haddat right and the leaders of all creatures and after : Looks at the knowledge of the language being one of the terms of the diligent worker with assets of Islamic jurisprudence to ete necessary to know the holy book of God, which is the first source of Islamic law, which touches the daily conduct practical for every Muslim such as prayer, fasting, transactions, etc., it is known that worships rely on verbal text and acts and statements and approve the infallible up to taxpayers by speech inaudible or illegible after the era of the infallible; and if so, must know the Arab speech styles; because the Koran was revealed. It is the manner of allocation methods and means some of what covered the speech with being compared with his output falls within the style allocation among other types, including its relevant wording of Commons, such as the condition and character and purpose exception including Mainvsal for the term of Commons such as mental and auditory, when a speech exception is devoted to the language, which will be the area of research, God Almighty . Find the three sections was taking exception to the first part, and idiomatically definition language when linguists and fundamentalists when it reported the views of some linguists and fundamentalists. The second section, entitled exception to the Staff stated inter exception clause exception vacuum, and the types of exception, the terms of the exception. The third Almiges was titled Placements in exception ensures the exception of the number and the exception of a few sentences, and finally was the finale, which contained the most important findings. Alla ask the Almighty to reconcile

The economic benefits of market timing the style allocation of characteristic-based portfolios

Many exchange traded funds track simple characteristic-based equity portfolios such as the market capitalization, the fundamental value or the inverse volatility portfolio. This paper provides theoretical and empirical evidence for the economic benefits in exploiting the timing-gains that result from the time-varying relative performance of these characteristic-based portfolios. Under a factor model for expected returns, we show that this dynamic portfolio allocation can be efficient across the low-dimensional set of characteristic-based portfolios. We assess the out-of-sample performance on the S&P 100 universe over the period 1990–2013 and show gains in stability and significant positive risk-adjusted returns for the dynamic style portfolio. We conduct several robustness tests and extensions confirming the benefits of dynamic style allocation across characteristic-based portfolios.

Equity style allocation: A nonparametric approach

In this article we provide a framework to assist with style allocation in Asian equity funds. We implement a nonparametric methodology to capture short-term stable time-varying relationships of otherwise long-term unstable relationships between numerous macroeconomic variables and style returns. We find that a nonparametric forecasting methodology produces positive performance after allowing for transaction costs, while the equivalent parametric forecasts are negative. The model can be implemented through tilting a funds style exposure to enhance performance. Even in the context of a long-only fund, the style exposures of the proposed model can be implemented as long–short exposures relative to a benchmark. Because the model is presented as a self financing market-neutral model, its implementation can be leveraged directly in a market-neutral fund or indirectly as (leveraged) style exposures in a long-only fund.

Characteristic-Based Equity Portfolios: Economic Value and Dynamic Style-Allocation

Many exchange traded funds track simple characteristic-based equity portfolios such as the market capitalization, the fundamental value or the inverse volatility portfolio. This paper provides theoretical and empirical evidence for the economic benefits in exploiting the timing-gains that result from the time-varying relative performance of these characteristic-based portfolios. Under a factor model for expected returns, we show that this dynamic portfolio allocation can be efficient across the low-dimensional set of characteristic-based portfolios. We assess the out-of-sample performance on the S&P 100 universe over the period 1990-2013 and show gains in stability and significant positive risk-adjusted returns for the dynamic style portfolio. We conduct several robustness tests and extensions confirming the benefits of dynamic style allocation across characteristic-based portfolios.

Allocation folding based on dominance

Memory management system performance is of increasing importance in today's managed languages. Two lingering sources of overhead are the direct costs of memory allocations and write barriers. This paper introduces it allocation folding, an optimization technique where the virtual machine automatically folds multiple memory allocation operations in optimized code together into a single, larger it allocation group. An allocation group comprises multiple objects and requires just a single bounds check in a bump-pointer style allocation, rather than a check for each individual object. More importantly, all objects allocated in a single allocation group are guaranteed to be contiguous after allocation and thus exist in the same generation, which makes it possible to statically remove write barriers for reference stores involving objects in the same allocation group. Unlike object inlining, object fusing, and object colocation, allocation folding requires no special connectivity or ownership relation between the objects in an allocation group. We present our analysis algorithm to determine when it is safe to fold allocations together and discuss our implementation in V8, an open-source, production JavaScript virtual machine. We present performance results for the Octane and Kraken benchmark suites and show that allocation folding is a strong performance improvement, even in the presence of some heap fragmentation. Additionally, we use four hand-selected benchmarks JPEGEncoder, NBody, Soft3D, and Textwriter where allocation folding has a large impact.

Efficient hedge fund style allocations: A rules-based model

The hedge fund literature has predominantly focused on the return and risk characteristics as well as the portfolio properties of different hedge fund styles. However, relatively little is known about how hedge fund investors should allocate their capital across various hedge fund styles. The aim of this study is to develop a rules-based framework that can be used by investors to optimize their hedge fund style allocation. We construct four hedge fund style indices using a sample of 6088 hedge funds from the Lipper TASS Hedge Fund Database over the January 1995–September 2010 time period. We also develop technical and fundamental indicators on the basis of the style return drivers from earlier hedge fund studies. We use these indicators to generate trading recommendations through a style allocation model that systematically over- and underweights the four major hedge fund styles. The empirical results indicate that our hedge fund style allocation model delivers an outperformance of up to 1 per cent per year over an equally weighted portfolio.

Cross-Sector Style Analysis Of Global Equities Based On The Fama And French Three-Factor Model

Although the ability of the Fama and French (1993) 3-factor model in explaining style-based portfolio returns have been widely tested, no such test has been conducted on sector-based portfolios. The study conducted by Hsieh and Hodnett (2011) indicate that the resource sector yields significant abnormal returns under the capital asset pricing model (CAPM) over the period from 1999 to 2009. In addition, the book value-to-market ratio and market capitalization are found to have pervasive effects on the pricing of sector returns for global equities. Motivated by this insight, we undertake to test the ability of the Fama and French (1993) 3-factor model in explaining the variations in the global sector returns. Our test results indicate that the market risk premium is the most significant factor that drives the returns in all sectors under review. Although the positive abnormal returns of the resource sector dissipates under the 3-factor model, the industrial sector and the information technology (I.T.) sector yield abnormal returns under the 3-factor model. Unlike the empirical findings on the style portfolios, the signs and statistical significance of the exposures to the value and size risk premiums are not consistent across all sectors. This finding suggests that sector exposures are more unique and distinctive compared to the style portfolios. It could be argued that since most of the style portfolios are directly related to the value and size anomalies, any factor model that incorporates risk premiums on these anomalies would significantly explain the style portfolio returns. However, the ability of such factor model in explaining returns on portfolios formed using methodologies other than style anomalies, such as sector portfolio returns, would be questionable. Taking into account the rising global integration, sector allocation might be more effective in terms of global active portfolio management or international diversification than style allocation and country allocation.

Do Managers Of Global Equity Funds Outperform Their Respective Style Benchmarks? An Empirical Investigation

Empirical literature suggests that stock-picking of fund managers do not provide economic benefits in addition to passively-replicated style benchmarks. This paper constructs a 4-factor style model using the Morgan Stanley Capital International (MSCI) World Index and the global size, value and momentum proxies to replicate the style benchmark returns of 12 actively-managed global equity funds based on the return-decomposition approach of Sharpe (1992). In line with prior literature, it is found that the returns of the global equity funds under investigation are primarily driven by their respective style benchmarks. The selection returns of the analyzed funds are insignificant after adjustments for the inherent style risks. We thus conclude that active stock-picking of fund managers do not provide significant value in addition to asset and style allocation decisions.

Application Of Tactical Style Allocation For Global Equity Portfolios

Our earlier study suggests that there exists specific timing for the two prominent investment styles, value and momentum. We extend our prior research to test and evaluate a tactical style allocation (TSA) model based on the weighted least squares (WLS) technique for global equities over the out-of-sample period from 1994 through 2008. Two TSA style-based portfolios are constructed in this research, namely, a portfolio with the risk-free proxy (cash component), the global momentum index and the global value index as its constituents, and a portfolio that is comprised of only the global momentum index and the global value index. The optimized portfolios based on the TSA model outperform the MSCI World Index, the global value index and the global momentum index on a risk-adjusted basis over the examination period. The cash component of the style-based portfolio appears to provide necessary protection during financial market crises. The results of our study support the use of the proposed TSA model to perform active style rotation between value stocks and momentum stocks for global equity portfolios.

Impact of investment horizon on the performance of value versus growth styles and style allocation

Most literature on time diversification focuses on the risks of stocks versus bonds. Little attention has been given to the impact of time horizon on the risks for value versus growth stocks. With the growing popularity of those two investment styles, it is in great need to analyze the time changing nature of risks for value versus growth styles. This article seeks to fill in the void. We study three downside risk measures: shortfall risk, expected loss and lower partial standard deviations (LPSDs), for value versus growth styles across different holding periods. We find that all the three risk measures decline when time horizon lengthens. The benefit of time diversification is greater for value stocks than for growth stocks. And value stocks outperform growth stocks in terms of both risks and returns in the long run. Does this mean that an investor should increase his/her investment in value stocks for longer investment horizons? We further explore the optimal mix of value and growth stocks across time horizons. Interestingly, even though value stocks dominate growth stocks in both risks and returns in the long run, adding growth stocks to value stocks is still beneficial. With rolling window analysis (when the returns are autocorrelated), the optimal weights for value stocks are approximately 50 per cent, 40–50 per cent and 30–40 per cent in order to minimize shortfall risk, expected loss and LPSDs, respectively, for an investment window of 1–15 years. With bootstrap analysis (return distributions are independent), the optimal weights for value stocks increase as time horizon lengthens. However, even for the 15-year window, the optimal portfolio still has about 30 per cent growth stocks. In other words, style diversification is still important even in the long run.

The Effect of Market Regimes on Style Allocation

We analyse time-varying risk premia and the implications for portfolio choice. Using Markov Chain Monte Carlo (MCMC) methods, we estimate a multivariate regime-switching model for the Carhart (1997) four-factor model. We find two clearly separable regimes with different mean returns, volatilities and correlations. In the High-Variance Regime, only value stocks deliver a good performance, whereas in the Low-Variance Regime, the market portfolio and momentum stocks promise high returns. Regime-switching induces investors to change their portfolio style over time depending on the investment horizon, the risk aversion, and the prevailing regime. Value investing seems to be a rational strategy in the High-Variance Regime, momentum investing in the Low-Variance Regime. An empirical out-of-sample backtest indicates that this switching strategy can be profitable, but the overall forecasting ability for the regime-switching model seems to be weak compared to the iid model.

Style Investing: Evidence from Hedge Fund Investors

This study tests the hypothesis that one component of investors' allocations across hedge funds takes place at the style level as a result of extrapolative expectations. Using a sample of 1543 hedge funds between 1994 and 2004, we decompose the allocation process of hedge fund investors between style allocation and fund selectivity. Our contribution is twofold. First, we find evidence that the aggregate of investors actively shift their allocations across style categories by chasing the winning styles in the previous one to three quarters. These results suggest that investors perceive styles as substitutes to each other, irrespective of the risk-return properties of each style category. Second, we do not find evidence of style-timing abilities of hedge fund investors, nor indications of momentum in style index performance at quarterly horizons. This suggests that the chasing-the-winner strategy among styles reflects correlated sentiment of investors, consistent with the style-investment hypothesis. Overall, our study raises concerns that, despite growth, capital is inefficiently allocated across hedge funds.

Extending Black-Litterman Analysis Beyond the Mean-Variance Framework

Extension of the Black-Litterman Bayesian approach to portfolio construction in the presence of non-trivial preferences about higher moments of asset return distributions has a particular application to active style allocation decisions in hedge fund investing. Results here suggest that the systematic implementation of active style allocation decisions can add significant value in a hedge fund portfolio, provided implementation of a sound investment process to account for non-normality and parameter uncertainty in hedge fund return distributions.