Ryan Larson, Vice President at Research Affiliates LLC, Tomatoes and the low volatility effect - In a recently released report, Larson explores ways to improve the outcome for both absolute and relative risk investors. He concludes that both relative and absolute risk investors can improve the structure of their equity portfolios by migrating away from the conventional equity allocation. Like tomatoes, which can be classified as a fruit or a vegetable, investors classify risk in their equity portfolios differently depending on their point of reference. In its simplest form, there are two types of equity risk: absolute risk and relative risk. Research shows that in an ideal world, investors should prefer to invest 100% in low volatility strategies that minimize absolute risk. However, the overwhelming trend to delegate authority to institutional money managers-who generally focus on relative performance-makes this outcome unrealistic. Read more: (VIEW LINK)
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