The New Science of Asset Allocation: Risk Management in a Multi-Asset World
While in most instances asset allocation failed to protect investors from devastating losses in 2007 and 2008, it remains an essential element of the investment decision. Asset allocation is not solely about maximizing expected return. Much of asset allocation is based on the tradeoffs between the costs and returns that are consistent with an investor's risk tolerance or investment goals. Today the challenge is greater than ever, not only because we are working in a more dynamic market but because the number of investment vehicles available to investors has increased as well.The New Science of Asset Allocationprovides expert guidance with a fresh approach designed to meet this challenge.The authors, each a prominent industry leader, first focus on risk, examining the principal tools associated with quantitative and qualitative analysis in determining fundamental asset and portfolio risk, as well as the ability of money managers to create value. While pointing out the importance of manager discretion in the asset allocation process, they also present solutions, which emphasize systematic approaches to capturing expected returns while limiting downside risk. They provide illustrative examples of an investor's decision-making process in moving between and among core and satellite portfolios and offer an overview of sample allocations and expected risk/return scenarios.While most books on asset allocation continue to emphasize the return and risk characteristics of traditional stock and bond investments,The New Science of Asset Allocationdetails major forms of alternative investments—their source of returns, their inherent risks, and their recent performance—including hedge funds, managed futures, private equity, real estate, and commodities. The book focuses on several practical techniques that can be used to measure, monitor, and manage the risk of a portfolio, stressing throughout that the road to a balanced portfolio through time comes from actively monitoring and managing risk. In addition, the expert authors identify investment myths that have become working beliefs in asset allocation—such as that diversification across equity issues or countries is sufficient, or that superior managers do not exist—and debunk each one with solid research.Asset allocation remains a cornerstone of prudent investment management, and through the new approach presented inThe New Science of Asset Allocation, you'll discover how to make it work.