geopolitical risk in port multi asset · » bloomberg port includes state- of-the-art portfolio...
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GEOPOLITICAL RISK IN PORT MULTI ASSET RISK MODEL
ADVANCED PORTFOLIO RISK AND ANALYTICS TOOLS TO BUILD BETTER PORTFOLIOS IN PORT<GO> SEP// 16 // 2014
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SUMMARY 2
» Webinar details
» What are risk factor models and why use them
» Bloomberg multi-asset class risk models
» Model coverage
» Geopolitical risk example
» Identifying sources of portfolio risk and return:
• Factor based performance attribution (FBA)
• Tracking Error breakdown
» How to reduce the major sources of geopolitical risk
» Q&A
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WEBINAR DETAILS
» On Demand • This webinar will be available ON DEMAND starting on
9/18/14 and available for 90 days » Slide availability
• The slides will be available through the ON DEMAND link to view this webinar; they will also be attached to the post webinar mailing
» Q&A • We will attempt to answer as many questions as possible • Additional answers to questions asked during today’s webinar
will be aggregated and part of the post-mailing sent out the following week
» Inviting a colleague • If you’d like to invite a colleague to view the ON DEMAND
version of this presentation, they may register at www.bloomberglp.com/PORTgeorisk
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PORTFOLIO & RISK ANALYTICS OVERVIEW
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A PREVIEW 5
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WHAT ARE FACTOR MODELS? 6
itktkttit fbfbfbr ε++++= ...2211
Factor Returns Non-Factor Returns
Security Returns
Factor Exposures (sensitivities)
This return decomposition also allows easy risk decomposition: • Need exposures, b • Factor covariances • Non-factor risk magnitudes
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WHY USE FUNDAMENTAL FACTOR MODELS?
• Intuitive decomposition of portfolio return and risk into exposures and factors
• Actionable: e.g. “I need to increase my Korea exposure” or “I want to lower exposure to the long end of the swap curve”
• A relatively small number of key factors explain risk/return of millions of securities=> on-the-fly risk calculations even for very large portfolios
• Can cover securities with (almost) no data: EM assets, IPOs, new issues
• High predictive ability, good at separating signal from noise
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BLOOMBERG REGIONAL MODEL: FACTOR HIERARCHY
Regional Model
USD FI
Curve
6m
1 yr
2 yr
…
Conv
Vol
Spread
Sov
Agcy
Corp
EUR FI
Curve
6m
1 yr
2 yr
…
Conv
Vol
Spread
Sov
Corp
Agency
EM FI
Local currency
Hard currency
EU Equity
Market Country
Germany
UK
…
Industry
Auto
Media
…
Style
Value
Growth
Size
Momentum
…
FX
EUR
JPY
CAD
GBP
…
Commodity
Agri
Energy
Nat Gas
Metals
…
Greeks
Vega
Gamma
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BLOOMBERG REGIONAL MODEL: ~1500+ FACTORS
• EQUITY: ~400 FACTORS • (100 Market/Country + 200 Industry + 100 Style)
• FIXED INCOME: ~720 FACTORS • (450 curve + 270 Spread)
• FX: ~160 FACTORS • COMMODITY: ~220 FACTORS
• (60 Agri + 10 Coal + 70 Crude + 15 Electricity + 30 Metals +
• 15 Nat Gas + 20 Shipping)
• GREEKS ~20 FACTORS
SEE MORE DETAILS ON HELP PORT<GO>
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RISK MODEL ASSET TYPE COVERAGE • Equities: REITs, ADR, GDR, NVDR, ordinary and preferred classes, 80,000+ issues
• Sovereign, agency, corporate bonds in almost all developed and emerging markets
• Securitized: ABS, CMBs, RMBS, ARMs, TBAs, Agency CMOs, pools
• Sovereign inflation linked bonds
• Municipal bonds
• Bank loans
• Money market securities
• Convertible bonds
• Preferred and hybrid preferred
• CDS/CDX
• IRS
• Equity, single stock, commodity and volatility (VIX) futures
• Bond futures, STIR futures
• Options on equity futures, options on VIX ETF
• Equity, FI, commodity and balanced ETFs
• Listed equity, index, and commodity options
• FX futures and forwards
• Equity, FI, commodity and balanced funds without holdings
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EXAMPLE: SAMSUNG STOCK IN A REGIONAL MODEL
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$
:$
Pr
11112.22 0.530.71 0.47
... 0.70
Asia
Korea
KRW
Semicond
Size Value
ofit Growth
Leverage
r fffx
ff ff f
fε
= ∗
+ ∗+ ∗∆
+ ∗+ ∗ + ∗+ ∗ + ∗
− ∗
+
Market return
Country return
Currency return
Industry return
Style returns
Factor returns
Non-Factor return
As of: 10/30/13
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EXAMPLE: SAMSUNG STOCK IN A REGIONAL MODEL
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$
:$
Pr
11112.22 0.530.71 0.47
... 0.70
Asia
Korea
KRW
Semicond
Size Value
ofit Growth
Leverage
r fffx
ff ff f
fε
= ∗
+ ∗+ ∗∆
+ ∗+ ∗ + ∗+ ∗ + ∗
− ∗
+
Market return
Country return
Currency return
Industry return
Style returns
Factor returns
Non-Factor return
As of: 10/30/13
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GEOPOLITICAL RISK EXAMPLE 13
Look at Eastern Europe ETF vs Europe ETF: ESR US vs IMEU LN
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GEO POLITICAL RISK EXAMPLE • LOOK AT EASTERN EUROPE ETF VS EUROPE ETF:
ESR US VS IMEU LN
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GEO POLITICAL RISK EXAMPLE • DEEPER LOOK AT SOURCES OF RETURN USING FACTOR-
BASED ATTRIBUTION (ATTRIBUTION TAB->SUMMARY)
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GEO POLITICAL RISK EXAMPLE • DEEPER LOOK AT SOURCES OF RETURN USING FACTOR-
BASED ATTRIBUTION (ATTRIBUTION TAB->SUMMARY)
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GEO POLITICAL RISK EXAMPLE • DEEPER LOOK AT SOURCES OF RETURN USING FACTOR-
BASED ATTRIBUTION (ATTRIBUTION TAB->TRENDS)
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DID THE MODEL SEE THIS IN 2011? • DEEPER LOOK AT SOURCES OF RISK USING FACTOR-
BASED RISK (TRACKING ERROR TAB->SUMMARY)
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This is risk forecast as of Oct 2011
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HOW TO MINIMIZE IT? OPTIMIZE IT! 19
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HOW TO MINIMIZE IT? OPTIMIZE IT! 20
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HOW TO MINIMIZE IT? OPTIMIZE IT! 21
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HOW TO MINIMIZE IT? OPTIMIZE IT! 22
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HOW TO MINIMIZE IT? OPTIMIZE IT! 23
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HOW TO MINIMIZE IT? OPTIMIZE IT! 24
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CAN WE DO BETTER? YES! 25
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CAN WE DO BETTER? YES! 26
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ANALYZE IN PORT 27
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CONCLUSION 28
» Factor models help analyze risk and return sources
» Country and currency factors are significant sources of risk and return that is commonly known as geopolitical risk
» Bloomberg PORT includes state-of-the-art portfolio construction tools which help investors construct better portfolios through hedging of unwanted risk sources and retain exposure to desired risk factors
» For more information on PORT type HELP PORT<go>
GEO
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WEBINAR DETAILS - RECAP
» On Demand • This webinar will be available ON DEMAND starting on
9/18/14 and available for 90 days » Slide availability
• The slides will be available through the ON DEMAND link to view this webinar; they will also be attached to the post webinar mailing
» Q&A • We will attempt to answer as many questions as possible • Additional answers to questions asked during today’s webinar
will be aggregated and part of the post-mailing sent out the following week
» Inviting a colleague • If you’d like to invite a colleague to view the ON DEMAND
version of this presentation, they may register at www.bloomberglp.com/PORTgeorisk
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//
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