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- Wiley
More About This Title Successful Investing Is a Process: Structuring Efficient Portfolios for Outperformance
English
What do you pay for when you hire a portfolio manager? Is it his or her unique experience and expertise, a set of specialized analytical skills possessed by only a few? The truth, according to industry insider Jacques Lussier, is that, despite their often grandiose claims, most successful investment managers, themselves, can't properly explain their successes. In this book Lussier argues convincingly that most of the gains achieved by professional portfolio managers can be accounted for not by special knowledge or arcane analytical methodologies, but proper portfolio management processes whether they are aware of this or not. More importantly, Lussier lays out a formal process-oriented approach proven to consistently garner most of the excess gains generated by traditional analysis-intensive approaches, but at a fraction of the cost since it could be fully implemented internally.
- Profit from more than a half-century's theoretical and empirical literature, as well as the author's own experiences as a top investment strategist
- Learn an approach, combining several formal management processes, that simplifies portfolio management and makes its underlying qualities more transparent, while lowering costs significantly
- Discover proven methods for exploiting the inefficiencies of traditional benchmarks, as well as the behavioral biases of investors and corporate management, for consistently high returns
- Learn to use highly-efficient portfolio management and rebalancing methodologies and an approach to diversification that yields returns far greater than traditional investment programs
English
JACQUES LUSSIER, PhD, CFA, is the Chief Investment Strategist at Desjardins Asset Management, and has been with the company since 1995. He is the current VP of the Montreal chapter of the CFA (Chartered Financial Analyst) Society. He is a regular speaker at conferences, seminars, and webinars. Previously, Mr. Lussier taught finance at HEC Montréal. He holds a PhD in International Business with a minor in Bank Studies from the University of South Carolina, a master's degree in Finance and a bachelor's degree in Economics from HEC Montréal.
English
Acknowledgments ix
Preface xi
Introduction 1
PART I: THE ACTIVE MANAGEMENT BUSINESS 5
CHAPTER 1: The Economics of Active Management 7
Understanding Active Management 8
Evidence on the Relative Performance of Active Managers 12
Relevance of Funds’ Performance Measures 15
Closing Remarks 17
CHAPTER 2: What Factors Drive Performance? 21
Implications of Long Performance Cycles and Management Styles 22
Ability to Identify Performing Managers 28
Replicating the Performance of Mutual Fund Managers 32
Closing Remarks 35
CHAPTER 3: Outperforming Which Index? 39
Purpose and Diversity of Financial Indices 40
Building an Index 41
Are Cap-Weight Indices Desirable? 43
Alternatives to Cap-Weight Indices and Implications 44
Closing Remarks 48
PART II: UNDERSTANDING THE DYNAMICS OF PORTFOLIO ALLOCATION AND ASSET PRICING 51
CHAPTER 4: The Four Basic Dimensions of An Efficient Allocation Process 53
First Dimension: Understanding Volatility 54
Second Dimension: Increasing the ARI Mean 68
Third Dimension: Efficiently Maximizing GEO Mean Tax 69
Fourth Dimension: Accounting for Objectives and Constraints 70
Closing Remarks 71
CHAPTER 5: A Basic Understanding of Asset Valuation and Pricing Dynamics 75
Determinants of Interest Rates 76
Determinants of Equity Prices 80
Historical Returns as a Predictor 86
Other Predictors 91
Review of Predictors 107
Closing Remarks 108
PART III: THE COMPONENTS OF AN EFFICIENT PORTFOLIO-ASSEMBLY PROCESS 113
CHAPTER 6: Understanding Nonmarket-Cap Investment Protocols 115
Risk-Based Protocols 115
Fundamental Protocols 128
(Risk) Factor Protocols 135
Comparing and Analyzing Protocols 142
Bridging the Gaps and Improving on the Existing Literature 144
A Test of Several Investment Protocols 148
Closing Remarks 157
CHAPTER 7: Portfolio Rebalancing and Asset Allocation 161
Introduction to Portfolio Rebalancing 161
The Empirical Literature on Rebalancing 170
A Comprehensive Survey of Standard Rebalancing Methodologies 175
Asset Allocation and Risk Premium Diversification 179
Volatility and Tail Risk Management 190
Volatility Management versus Portfolio Insurance 197
Closing Remarks 199
CHAPTER 8: Incorporating Diversifiers 203
Fair Fees 204
Risk Premium and Diversification 205
Commodities as a Diversifier 208
Curencies as a Diversifier 228
Private Market Assets as a Diversifier 244
Closing Remarks 250
CHAPTER 9: Allocation Process and Efficient Tax Management 255
Taxation Issues for Individual Investors 256
Components of Investment Returns, Asset Location, Death and Taxes 257
Tax-Exempt, Tax-Deferred, Taxable Accounts and Asset Allocation 260
Capital Gains Management and Tax-Loss Harvesting 276
Is It Optimal to Postpone Net Capital Gains? 280
Case Study 1: The Impact of Tax-Efficient Investment Planning 289
Case Study 2: Efficient Investment Protocols and Tax Efficiency 291
Closing Remarks 293
PART IV: CREATING AN INTEGRATED PORTFOLIO MANAGEMENT PROCESS 295
CHAPTER 10: Understanding Liability-Driven Investing 297
Understanding Duration Risk 298
Equity Duration 303
Hedging Inflation 307
Building a Liability-Driven Portfolio Management Process 310
Why Does Tracking Error Increase in Stressed Markets? 312
Impact of Managing Volatility in Different Economic Regimes 314
Incorporating More Efficient Asset Components 320
Incorporating Illiquid Components 322
Role of Investment-Grade Fixed-Income Assets 323
Incorporating Liabilities 324
Incorporating an Objective Function 325
Case Study 326
Allocating in the Context of Liabilities 331
Closing Remarks 335
CHAPTER 11: Conclusion and Case Studies 337
Case Studies: Portfolio Components, Methodology and Performance 340
Conclusion 349
Bibliography 351
Index 361
