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Showing posts from October, 2018

What's wrong with Wealthfront's Risk Parity Fund? Sleuthing using regression analysis

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In January, robo-advisor Wealthfront launched a risk parity fund. Risk parity means investing in multiple asset classes, and using leverage to increase the returns from the less volatile asset classes such as bonds.

The fund immediately attracted criticism for its high fees, which it soon cut. But it turns out there's more wrong with Wealthfront's risk parity fund than the fees. In April, I noted that the fund was already trailing both stocks and bonds, and trailing AQR's risk parity fund (AQRIX) by 4%. I suspected they had way too much leverage to bonds in a rising interest rate environment, and I investigated using a very simple regression analysis.

Indeed! Run the regression against just a 2-asset model of S&P and Lehman Agg. You'll find a huge beta to bonds -- about 3x that of AQR's risk parity fund. Sad! — W.C. Varones (@wcvarones) April 23, 2018
You can do regression analysis like this with a number of programs from Excel to more sophisticated tools like …

Life Imitates Art

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Greenspan visits the Emerald Isle

Irish Examiner:
Insolvency experts are warning that mortgage arrears are still leading some homeowners to thoughts of suicide as the level of insurmountable household debt remains stubbornly high.

The Association of Personal Insolvency Practitioners (APIP) also says the ongoing problem of mortgage arrears is going to exacerbate the homelessness crisis as lenders lose patience and push for repossession.

Eugene McDarby, APIP chairman, said the crisis is clear to the 80-plus PIPs operating across the country.

“In the past week alone, I have met three clients who have admitted to giving consideration to taking their own lives,” he said.

“To wake up every morning knowing that you are in danger of losing your home would take its toll on the most mentally tough person.

Most recent Central Bank figures show that almost one in every 11 residential mortgages — representing 66,479 households — was in arrears at the end of June this year.