Innovative approaches to putting asset allocation into practice Building on more than 15 years of asset-allocation research, Paul D. Kaplan, who led the development of the methodologies behind the Morningstar Rating(TM) and the Morningstar Style Box(TM), tackles key challenges investor professionals face when putting asset-allocation theory into practice. This book addresses common issues such as: How should asset classes be defined? Should equities be divided into asset classes based on investment style, geography, or other factors? Should asset classes be represented by market-cap-weighted indexes or should other principles, such as fundamental weights, be used? How do actively managed funds fit into asset-class mixes? Kaplan also interviews industry luminaries who have greatly influenced the evolution of asset allocation, including Harry Markowitz, Roger Ibbotson, and the late Benoit Mandelbrot. Throughout the book, Kaplan explains allocation theory, creates new strategies, and corrects common misconceptions, offering original insights and analysis. He includes three appendices that put theory into action with technical details for new asset-allocation frameworks, including the next generation of portfolio construction tools, which Kaplan dubs "Markowitz 2.0."
Foreword Introduction Part I: Equities 1. Purity of Purpose: How Style-Pure Indexes Provide Useful Insights 2. Investing in Europe With Style: Why Investors in Europe Would Benefit From Constructing Portfolios Through the Prism of Style 3. Why Fundamental Indexation Might-or Might Not-Work 4. The Fundamental Debate: Two Experts Square Off on theBig Issues Surrounding Fundamentally Weighted Indexes 5. Collared Weighting: A Hybrid Approach to Indexing 6. Yield to Investors? A Practical Approach to Building Dividend Indexes 7.Holdings-Based and Returns-Based Style Models 8. Estimates of Small Stock Betas Are Much Too Low 9. A Macroeconomic Model of the Equity Risk Premium Part II: Fixed Income, Real Estate, and Alternatives 10. Good and Bad Monetary Economics, and Why Investors Need to Know the Difference 11. Inflation, Gilt Yields, and Economic Policy 12. Reverse Mean-Variance Optimization for Real Estate Asset-Allocation Parameters 13. The Long and Short of Commodity Indexes 14. Less Alpha and More Beta Than Meets the Eye 15. Venture Capital and its Role in Strategic Asset Allocation Part III: Crashes and Fat Tails 16. One and a Quarter Centuries of Stock Market Drawdowns 17. Stock Market Bubbles and Crashes: A Global Historical and Economic Perspective 18. Deja Vu All Over Again 19. Deja Vu Around the World 20. Getting a Read on Risk: A Discussion With Roger Ibbotson, George Cooper, and Benoit Mandelbrot on the Crisis and Risk Models Part IV: Doing Asset Allocation 21. Does Asset-Allocation Policy Explain 40%, 90%, or 100% of Performance? 22. Asset-Allocation Models Using the Markowitz Approach 23. Asset Allocation With Annuities for Retirement-Income Management 24. MPT Put Through the Wringer: A Debate Between Steven Fox and Michael Falk 25. Updating Monte Carlo Simulation for the 21st Century 26. Markowitz 2.0 27. What Does Harry Markowitz Think? A Discussion With Harry Markowitz and Sam Savage Afterword About the Author Index
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