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Primary Article

Total Return Strategies for Multi-Asset Portfolios

Ulf Herold, Raimond Maurer, Michael Stamos and Huy Thanh Vo
Trading Fall 2008, 2008 (1) 84-100
Ulf Herold
Director of the Quantitative Strategies Group at Metzler Investment in Frankfurt/Main, Germany
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  • For correspondence: UHerold@Metzler.com
Raimond Maurer
Chair of Investment, Portfolio Management, and Pension Finance at Johann Wolfgang Goethe University in Frankfurt/Main, Germany
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  • For correspondence: investment@wiwi.uni-frankfurt.com
Michael Stamos
Chair of Investment, Portfolio Management, and Pension Finance at Johann Wolfgang Goethe University in Frankfurt/Main, Germany
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  • For correspondence: investment@wiwi.uni-frankfurt.com
Huy Thanh Vo
Chair of Investment, Portfolio Management, and Pension Finance at Johann Wolfgang Goethe University in Frankfurt/Main, Germany
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  • For correspondence: investment@wiwi.uni-frankfurt.com
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Abstract

Traditional balanced funds with a more or less constant stock allocation cannot solve the conflict of the varying investment horizons most institutional investors face. To generate capital gains, the investor must accept large allocations in risky asset classes like equities, which is often difficult to reconcile with short-term requirements such as avoiding annual losses. One way around this problem is a risk-based total return strategy that explicitly controls for shortfall risk and at the same time uses the available risk budget effectively to enhance performance potential in the long run. Because such a strategy allows for greater shifts in asset class weights over time, it can start with larger allocations to stocks or other risky asset classes than static strategies. An extensive simulation study comparing this risk-based strategy to several dynamic asset allocation approaches in a backtest quantifies its short-run hedging effectiveness and long-run hedging costs.

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Trading: 2008 (1)
A Guide to Multi-Asset Trading Strategies
Vol. 2008, Issue 1
Fall 2008
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Total Return Strategies for Multi-Asset Portfolios
Ulf Herold, Raimond Maurer, Michael Stamos, Huy Thanh Vo
Trading Sep 2008, 2008 (1) 84-100;

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Total Return Strategies for Multi-Asset Portfolios
Ulf Herold, Raimond Maurer, Michael Stamos, Huy Thanh Vo
Trading Sep 2008, 2008 (1) 84-100;
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