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Rates Factors and Global Asset Allocation

Joshua Kothe, Harald Lohre and Carsten Rother
The Journal of Fixed Income Winter 2021, 30 (3) 6-25; DOI: https://doi.org/10.3905/jfi.2020.1.098
Joshua Kothe
is a portfolio management associate at Invesco Quantitative Strategies in Frankfurt/Main, Germany
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Harald Lohre
is a director of research at Invesco Quantitative Strategies in Frankfurt/Main, Germany, a fellow of the Centre for Endowment Asset Management (CEAM), Cambridge Judge Business School, University of Cambridge, UK, and a visiting research fellow at the Centre for Financial Econometrics, Asset Markets and Macroeconomic Policy (EMP) at Lancaster University Management School, UK
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Carsten Rother
is a research analyst at Invesco Quantitative Strategies in Frankfurt/Main, Germany and a doctoral student at the University of Hamburg, Germany
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Abstract

Style factors that are prominent in other asset classes, such as carry, value, momentum, and defensive, do extend to the fixed income domain as well. We investigate factor investing across global government bonds and the use of such rates factors for a multi-asset investor. These rates factors significantly improve the investment opportunity set of investors, representing valuable tail hedges and offering diversification potential. Furthermore, complementing conservative multi-asset strategies by rates factors can enhance returns and reduce the likelihood and severity of downturns not only in-sample, but also in out-of-sample portfolio simulations.

TOPICS: Fixed income and structured finance, factor-based models, style investing

Key Findings

  • • Style factors that are prominent in other asset classes, such as carry, value, momentum, and defensive, do extend to the fixed income domain as well.

  • • These rates factors significantly improve the investment opportunity set of multi-asset investors, representing valuable tail hedges and offering diversification potential.

  • • Complementing conservative multi-asset strategies by rates factors can enhance returns and reduce the likelihood and severity of downturns not only in-sample, but also in out-of-sample portfolio simulations.

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The Journal of Fixed Income: 30 (3)
The Journal of Fixed Income
Vol. 30, Issue 3
Winter 2021
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Rates Factors and Global Asset Allocation
Joshua Kothe, Harald Lohre, Carsten Rother
The Journal of Fixed Income Dec 2020, 30 (3) 6-25; DOI: 10.3905/jfi.2020.1.098

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Rates Factors and Global Asset Allocation
Joshua Kothe, Harald Lohre, Carsten Rother
The Journal of Fixed Income Dec 2020, 30 (3) 6-25; DOI: 10.3905/jfi.2020.1.098
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  • Article
    • Abstract
    • STYLE FACTORS IN GLOBAL GOVERNMENT RATES
    • RATES FACTORS AND GLOBAL ASSET ALLOCATIONS
    • CONCLUSION
    • ADDITIONAL READING
    • ACKNOWLEDGMENTS
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