This dissertation examines the role of new asset classes and optimal dynamic strategies for tailored portfolios with a focus on passive investment portfolios. With a passive investment strategy a fund manager does not seek to outperform the rest of the market; rather, the fund manager tries to construct, at a low cost, a well-diversified portfolio that matches the risk appetite of the investor. Traditionally, passive strategies have relied on two major financial asset classes: bonds and equities. This study shows there are merits in expanding the range of acceptable assets. One should consider securities defined on real estate, commodities, hedge funds, private equity, commodities or even volatility. One should also consider the interrelationships of these securities over the long run and, further, one should consider options or dynamic investment strategies that produce return profiles that are not linear in the constituent asset returns. So, passive investment strategies do not necessarily need to be limited to index tracking strategies based on equities and bonds. As a result, this study is focused on the design of portfolios tailored to passive investment strategies. This study addresses these broader issues in four main chapters. Firstly, we address the choice of asset classes to include in optimal passive portfolios in a single period context: Should optimal passive portfolios include allocations to commodities, volatility, hedge funds and private equity (PE)? What is the most attractive path to an investment in hedge funds: single manager hedge funds (HF), fund of hedge funds (FoHF) or investible hedge fund (IHF) indices? Are the relatively new lHF indices merely disguised FoHF? These questions are answered using a methodology similar to the Black-Litterman (BL) model. We find that, if one assumes that recent performance of alternative investments persists, it is optimal to tilt the global market portfolio towards HF, commodities and PE and away from traditional assets. There is no place for lHF indices or FoHF. The similarity in performance of these two investment vehicles is so similar to suggest that IHF indices are merely disguised FoHF.
| Identifer | oai:union.ndltd.org:bl.uk/oai:ethos.bl.uk:606950 |
| Date | January 2013 |
| Creators | White, Anthony |
| Publisher | University of Reading |
| Source Sets | Ethos UK |
| Detected Language | English |
| Type | Electronic Thesis or Dissertation |
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