I'm talking not knowing what the risks are.
From Barron's Focus on Funds:
Institutional Investors’ Strategies Leave Them Uncertain About Risk: Northern Trust
There’s some debate about how smart ‘smart beta’ is over time, these alternative strategies still appeal to about half of ETF-focused financial advisors.Good grief.
Perhaps then it’s not surprising that institutions as well have been turning to strategies that try to find better risk-return offerings than the market.
Yet as Northern Trust Asset Management notes in a new report on risk-factor investing, institutions turning toward various strategies that focus on everything from momentum investing to volatility and yield may not actually know the real risk levels of their investments.
Among the 139 institutional investors from around the globe surveyed, a mere 18% responded they were “very certain” of the actual risk factor exposure across their listed equity portfolios. A majority—51%—offered the more tepid response of being only “moderately certain” of actual risk, and nearly a third—31%—admitted to being “fairly uncertain.”
All of this also comes with unintended consequences, notes the report:
Based on the survey results and in-depth analysis of three pension funds in the United Kingdom, Europe and United States, the study finds that institutional investors incorporating a wide range of active and passive equity strategies in their overall portfolio end up with a neutral factor exposure – despite intended tilts to one or more factors – so that portfolios do not always reflect the investors’ goals and objectives....MORE
