Asset Allocation

Does Gold Belong in Your Portfolio?

March 2018

Should investors have an allocation to gold? The ambiguous movements in the price of gold are challenging to understand; however, amid the price gain in gold over the last two decades, the question of whether an investor should own gold is even more difficult to answer. The attached Insights seeks to address this question and also details how investors might gain exposure to gold.


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Factor Investing

August 2017

Factor investing has gained in popularity in recent years due to the availability of factor products. We believe there are several practical ways in which investors can make use of the expanding set of factor strategies. Specifically, we believe factors can be used in two ways: 1) top-down asset allocation portfolio construction and 2) bottom-up manager/strategy selection. The attached Insights seeks to define factor investing and provide a framework which investors can use to incorporate factor strategies into portfolios.


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Wag The Dog: Why Investors Should Understand and Care About Tail Risk

February 2017
As the Boy Scouts’ pledge suggests, “Be Prepared.” Investors should all expect to experience a significant tail event in their lifetime. Too often we hear the commentary that 1-in-100 events occur more often than we expect. Accusations abound that risk models have underestimated the probability of such events. We would suggest that it is our responsibility as practitioners to better define, understand, educate, and use risk models and forecasts to help investors prepare for future tail events.


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The Case for a Strategic Allocation to Long Treasury Bonds

May 2016
Investors often have strong opinions, either positive or negative, about the use of long duration Treasury bonds within a portfolio. While many defined benefit plans make use of long Treasury bonds for hedging purposes, we also believe that total return investors can benefit from a strategic allocation to the asset class. More broadly, we believe this asset class can and should play a role in a long-term portfolio that has significant exposure to risk assets (e.g., equities and credit). When implementing a long Treasury allocation, we would not suggest moving to that allocation in its entirety immediately, but rather over time. This paper will review the properties of long duration Treasury bonds, examine the role of fixed income in a portfolio, discuss the implications of rising interest rates and evaluate the merits of long Treasury bonds in a portfolio.


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Incorporating Alternatives in an LDI Growth Portfolio

June 2015
Many pension plan sponsors following a liability driven investing (“LDI”) approach have split their portfolios into hedging assets and growth assets. Typically, public equity strategies have constituted the vast majority of growth portfolios. Historically, alternative investment strategies have demonstrated an ability to meaningfully enhance the risk/return profile of a long-only equity allocation. In this Rocaton Insights, we detail several alternative asset classes which may be appropriate for inclusion in an LDI growth portfolio.


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Currency Hedging: Is It Worth It?

April 2015
Given the high utilization of target date options in defined contribution plans, target date options are receiving ever greater scrutiny. As such, custom target date options are becoming a more popular discussion topic. While there are many factors that could lead a plan sponsor to seriously consider custom target date options, we believe there are a few key considerations that should receive the most weight when considering custom target date solutions. We suggest that there should be a higher hurdle for custom implementation and we outline a number of considerations for custom target date options in this Rocaton Insights.


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Liability-Driven Investing Principles for Pensions

March 2015
Liability-driven investing (LDI) for corporate pension plans can take on many flavors. At its most basic, it simply represents a framework whereby the sponsor views, assesses, and invests assets in the context of liabilities. This Rocaton Insights addresses a number of topics related to the LDI framework and explains, at a high level, a number of Rocaton’s LDI philosophies.


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Investing in a Low Return Environment

August 2014
Over the last five years, capital markets across the globe have rewarded investors handsomely. Unprecedented monetary stimulus from central banks around the world has lowered interest rates and boosted equity markets. This has led to a scarcity of attractively priced assets and lowered future return expectations for most asset classes. As a result, investors may be asking themselves how to position their portfolios. The balance of this Insights will describe potential routes that investors might consider including moving to a more defensive positioning, hedging against downside outcomes (i.e. options or tail risk management strategies), increasing portfolio risk to compensate for low expected returns or maintaining existing allocations.


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The Most Important Price in the World: U.S. Interest Rates and the Impact on Asset Allocation

May 2014
Global financial markets have rallied in the last five years, due in part to easy monetary policies. As a result, future return expectations for many asset classes are modest given low starting interest rates and elevated equity market valuations. Investors may want to reposition their portfolios to exploit some of the limited market opportunities that exist, be positioned at or possibly even below target risk levels and be prepared to deploy capital during the next market correction.


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