Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Winning in a “K-Shaped” Recovery
The S&P 500 Index reached a historic high on February 19th of this year, only to break that record less than six months later. On its face this sounds reasonable, however when considering the unprecedented nature of the events that transpired in-between, this is downright shocking. Over this six-month period the S&P 500 realised its swiftest decline in history, contracting over 30% in less than 22 trading days, putting an end to the 11-year bull market, as 9.5 years of job gains were wiped away in less than a month. The US government passed a $2 trillion relief package, the largest stimulus in history as the Fed slashed interest rates near zero. In the meantime, the US economy shrank by an annualised 32.9% quarter-over-quarter on an annualised basis, the largest ever recorded contraction.
To read the full media release by QS Investors click here.
Michael LaBella, Head of Investment Strategy at QS Investors.
