Excess Returns Bridging Financial Planning and Factor Investing with Northern Trust's Peter Mladina
Jun 1, 2023
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Chapters
Transcript
Episode notes
Hedge Near Goals And Risk For Aspirational Goals
- Hedge high‑priority, near-term goals with duration‑matched high quality bonds and fund aspirational goals with return‑seeking assets.
- Build subportfolios (goal hedges and risky portfolio) so each is efficient and rolls up to an optimal total portfolio.
Human Capital Is A Key Investment Asset
- Human capital is the largest non‑traded asset and must be included in asset allocation.
- The riskiness of net human capital (and its volatility) affects glide paths and whether it behaves like bond, high‑yield, or equity risk.
Four Criteria That Define A Valid Factor
- A good factor meets criteria: compensated return premium, explains systematic co‑movement, non‑redundant with other factors, and ideally has a risk‑based theory.
- Lacking theory raises risk of data‑mined factors that may not persist.