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LFIS Identifies Common Drivers behind Alt Risk Premia’s Difficult Year


LFIS goes beyond the headlines to investigate the drivers of losses industry-wide in 2018, with interesting findings on factor investing approaches. This paper is the most recent in LFIS’ on-going collaboration with Risk Magazine.

Those who were waiting for the ARP industry to face its first “real” test got their wish: 2018 was a very challenging and revelatory year.  In 2018, all the main risks of ARP investing, including overly simple factor construction and inadvertent market exposure, forced selling/deleveraging, recorrelation risk and lack of diversification, materialized in the same 12-month period. Using PCA helps understand the strategies that drove losses industry-wide, while regression analysis allows then to determine the exposure of individual funds to these strategies.

To access the Risk.net article, click here (subscription required).

To access other white paper in the series, click here.

For more information about LFIS’ Absolute Return strategies, click here.

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