By Russell Korgaonkar and Graham Robertson – Man AHL: Over the past few years, we have written about how it is possible to build portfolios using tried-and-tested risk management techniques that have similar risk characteristics to traditional portfolios, but with improved returns. Termed the ‘Z-shift’ because of the figure drawn in risk-return space, the technique makes use of diversification, capital efficiency and risk management overlays.
In the Z-shift, the route from the traditional 60/40 portfolio to, in our view, a more optimal portfolio, is as follows.
