CAIA Viewpoints offer a summary-level look at industry trends and models that continue to shape alternative investment strategies. Each Viewpoint links to the full text of the paper as it appeared in CAIA journals.

October 24, 2018
More Illiquidity Please

It is common practice for investors and consultants to establish return, volatility and covariance assumptions for all their asset classes, and to use these to produce a raft of portfolio return and risk statistics. A key assumption underpinning this kind of analysis is that portfolios can be rebalanced to target, even after large market drawdowns. One of the key benefits of diversification comes from the idea that we can rebalance from assets that have performed well into those that have not, and then reap the benefits as they mean revert to their long-run returns. However, that assumption is out the window if no one’s buying. Read the full summary below.

October 23, 2018
The Mean Reverting Fear Factor

The complacency that investors experienced most of the year is starting to be a thing of the past. As we witnessed an uptick in volatility in October 2018, it behooves us to revisit some of the volatility products to investors specifically short volatility products. In "In Free Fall and Yet Attractive? Short Volatility in ETFs" by Claus Huber, he poses the question: "How can an ETF, which is accessible to retail investors, suffer an almost total loss in such a short time?" Read the full summary below.

September 24, 2018
Hello Darkness, My Old Friend

“This time it’ll be different” has been the proverbial go-to phrase for recent media outlets in trying to explain why we should all be concerned about the looming crisis given our 10-year anniversary. Earlier in 2018 we published a whitepaper titled “Endgame” by Michael Ning and Michael DePalma, which highlights why history may not repeat itself, but it sure may rhyme. No market cycle has lasted forever, and the current cycle is likely to be no different. The market turmoil experienced in early February may be a warning of what’s to come.

September 17, 2018
A Better Managed Future

The hypothesis and aim of “Managed Futures and the AC-DC Effect or Highway to Prosperity” by Urs
Schubiger, Egon Ruetsche and Fabian Dori is to demonstrate that the unambiguous answer is yes! The risk
premia of - as well as correlations between - asset classes are time varying, and strategies that dynamically
adjust to changing attractiveness and co-movements can harvest positive returns in various market

September 17, 2018
Know Your Risk

As most media outlets and finance professionals take an introspective look 10 years after the global financial
crisis, we thought it would be apropos to revisit a paper by Andrew Rozanov, CAIA titled “Volatility, NonRandomness
or Non-Linearity: What Drives Portfolio Returns in Times of Stress and Dislocation?” This paper
considers what underlying exposures drive portfolio returns in periods of extreme market stress and dislocation.

September 17, 2018
A Simple Approach to the Management of Endowments

Endowments and foundations are tax exempt and charitable organizations that rely on
permanent pools of capital to fund their activities. Institutions such as colleges, universities,
hospitals, museums, scientific organizations, charitable entities, and religious institutions own
these pools of capital. When well-funded and well managed, an endowment can provide a
permanent annual income to the organization, while maintaining the real value of its assets in

August 07, 2018
A Misdiagnosed Problem

“Reconsidering Hedge Fund Contagion” by Richard Sias, H.J. Turtle and Blerina Zykaj provides an alternative, and contrary, view of hedge fund contagion, hedge fund crowding, hedge funds’ role in the 2007–2008 financial crisis, and hedge funds’ role the 2007 quant crisis.

June 27, 2018
Patience as An Alpha Source

Igor Yelnik of ADG Capital Management wrote the paper "Patience Premium", which introduces the eponymous notion which is based on the concept of ambiguity aversion and ultimately can be defined as an ambiguity premium. The paper identifies three reasons for the existence of the patience premium: certainty preferences, comparison with peers, and loss aversion. The phenomenon of the patience premium helps explain why the performance of investment strategies may benefit from having longer holding periods.

June 26, 2018
A New Target

The paper titled "Designing the Future of Target-Date Funds" revisits target-date fund designs and single manager structures to address the failure of target date strategies to guard against today's heightened retirement risks. The authors indicate that most retirement plans still use traditional designs that were adopted years ago, but fiduciary standards have changed.

May 30, 2018
Is It Time Yet?

In “Market Timing: Opportunities and Risk,” Wim Antoons explores opportunities for enhancing returns using tactical asset allocation and market timing, as well as the challenges posed by market timing, including higher costs and the risk of missing the best-performing days of the market.