Absolute returns in wealth management: implementing risk controlled strategies

The first few years of the 2000s have been characterized by a magnified and explicit return to the investment approach that is now widely known as ‘absolute return.’ In this article, we discuss the practical steps to implement an absolute return strategy in equity markets, by first unbundling alpha from beta in the portfolio, then optim...
Author(s)
Francois-Serge Lhabitant, Denis Mirlesse, Michel Chardon,

The first few years of the 2000s have been characterized by a magnified and explicit return to the investment approach that is now widely known as ‘absolute return.’ In this article, we discuss the practical steps to implement an absolute return strategy in equity markets, by first unbundling alpha from beta in the portfolio, then optimising the beta component by choosing the most efficient index tracking method, and finally applying the most appropriate dynamic risk budgeting technique to the indexation. This paper was published in the April 2006 issue of the Journal of Financial Transformation.