Bridge over ocean
1 January 2000 Financial Analysts Journal Volume 56, Issue 1

Controlling Risk in Global Multimanager Portfolios

  1. Wenling Lin

The issue of country and sector effects is important for portfolio construction and risk management. Unlike the many studies that have addressed the issue by analyzing individual stocks, this article focuses on analyzing managed portfolios. Using global data on manager excess returns and portfolio characteristics, I examined the relative effects of country versus sector bets on excess-return variations. I then evaluated alternative portfolio construction strategies by using optimization and simulation methods. I found that active country exposure is a larger driver of variations in individual managers' excess returns than is active sector exposure. Using this information, money managers can learn current investment industry trends in country and sector selection and fund managers can construct their multimanager portfolios to reduce tracking error by weighting individual managers to limit country exposure in an overall portfolio.

Read the Complete Article in Financial Analysts Journal Financial Analysts Journal CFA Institute Member Content

We’re using cookies, but you can turn them off in Privacy Settings.  Otherwise, you are agreeing to our use of cookies.  Accepting cookies does not mean that we are collecting personal data. Learn more in our Privacy Policy.