Jim Hawley, professor emeritus, Saint Mary’s College California, and head, Applied Research, TruValue Labs, and Jon Lukomnik, managing partner of Sinclair Capital, executive director of the Investor Responsibility Research Center Institute, have written a guest viewpoint in Investment and Pensions Europe (IPE) Magazine about their recently released report, The Purpose of Asset Management. The article highlights their report’s exploration of the Modern Portfolio Theory (MPT) paradox and their case for why MPT should include systems-level investing and beta activism.
From their article in Investment and Pensions Europe (IPE) Magazine: “MPT says that while investors can diversify idiosyncratic risk, they are at the market’s whim with systemic risk. In other words, MPT postulates that investments are buffeted by beta (the market’s risk and return) but how investors invest does not affect beta. However, we know from research studies that the impact of exposure to those systemic risks – market beta – is more powerful in determining investment returns than any manager’s ability to extract differentiated returns owing to their skill (managerial alpha). That creates the MPT paradox. If it is accepted that MPT cannot affect beta, then an investor is in a bind: what we can affect matters much less than what MPT tells us we cannot.”
Read full article in IPE Magazine here.
Read full report here.
