Wednesday, February 18, 2009

Beta is the way for 2009 says TOBAM

Beta is the most important investment opportunity in 2009 according to TOBAM, the investment manager formed from the break up of Lehman Brothers Asset Management.

"Investors have paid a premium for alpha over the last few years and as they read their investment reports in the coming weeks, they may well be asking themselves what they have been paying for," commented Yves Choueifaty, president of TOBAM.

"In 2009 the most important investment opportunities will be beta rather than alpha, so diversification should be at the top of every investors' ‘must do' list. Markets are incredibly volatile right now and strategies which spread risk cannot possibly be at a disadvantage to concentrated risk-taking."

Capturing beta efficiently is often overlooked as a path to superior investment results, according to TOBAM. There has been a trend towards non-market cap solutions and one of the more efficient approaches for beta construction is known as anti-benchmark. This uses a mathematical approach to create the ‘most diversified portfolio'.

This portfolio does not rely on historic earnings, sales or other valuation criteria to try and predict the future, rather it spreads risk more evenly across all the currently identifiable market risk factors.

TOBAM research indicated that focusing on efficient beta construction, without making big bets, is a way to achieve higher returns with less risk. Diversification is the strategy which is worth paying attention to at all times, concluded TOBAM.

The anti-benchmark strategy has been designed to offer an alternative to using market cap weighted indices as a core equity market exposure, which investors hold to capture the equity risk premium. TOBAM said it believes this risk premium is best captured by holding what investment literature refers to as a ‘well-diversified portfolio'.

Anti-benchmark is designed to be the most diversified portfolio possible for a given universe of securities and is expected to be the most efficient way to capture the higher returns available from holding equities.

The greater efficiency of anti-benchmark compared to market cap benchmarks leads over time to more return with less risk than the market cap weighted indices, concluded TOBAM.

Its research indicates that investors spend much of their time seeking new sources of alpha, when in fact expected returns over time are almost entirely driven by capturing the risk premium of their asset allocation.

Anti-benchmark does not depend on the predictions of a star fund manager or on extrapolating results in the past to predict returns in the future. The strategy provides better results by taking maximum advantage of diversification.

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Lunch is for wimps

Lunch is for wimps
It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another.