Qontigo, an investment intelligence leader and provider of best-of-breed analytics and world-class indices, launched its first Worldwide Equity Linked Factor Risk Model, providing targeted factor exposures through a combination of the Axioma US, Developed Markets ex-US and Emerging Market Equity Factor Risk Models.
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Many risk model users may prefer the simplicity of using a single model to evaluate the risks in their portfolios. However, a very broad model may be misaligned with the portfolios and therefore, may miss some of the important nuances that can help risk estimates be more accurate, attribution more intuitive and to drive better performance.
“For example, a multimanager portfolio that uses a global model may only see a net exposure of zero, when in fact, there was a positive exposure in one region, but a negative exposure in another,” explained Melissa R. Brown, Head of Applied Research. “When we looked at Value, we saw this very example illustrated for a manager running a global portfolio. When viewed through the lens of a global model, the manager would have missed the Value exposure evident in the developed markets and the US.”
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The Axioma Worldwide Equity Linked Factor Risk Model leverages a state-of-the-art modeling technique offering a number of benefits for end users including:
- A balance between a parsimonious and granular factor structure for both portfolio construction and risk decomposition
- More flexible and cleaner risk forecasting and attribution for global investors with region-specific mandates
- Ability to understand and manage the risk of out-of-region bets
- Better alignment across the organization with the ability to monitor risk across the full book while maintaining focus on regional mandates
“The best risk model is always going to be the one that is most closely aligned to your investment process,” said Alessandro Michelini, Head of Portfolio Solutions at Qontigo. “We recently introduced the ability to create linked models in the Risk Model Machine, our tool allowing users to customize their risk models combining their research and factor definitions with the need for a robust production infrastructure. Following on that success, we are now offering this standard off-the-shelf linked model, giving investors and risk managers access to even better granularity, usability and flexibility.”
The Axioma Worldwide Equity Linked Factor Risk Model is available as a flat file and application file format in both short- and medium-term horizons that are updated daily. It can also integrate seamlessly with Axioma portfolio construction, performance analytics and risk management solutions as well as third-party tools.
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