Australian Equities

A fundamental view of risk in small cap portfolios


David Wanis

David Wanis

Portfolio Manager, Multi-Asset

Assessing and managing portfolio risk in small caps has traditionally been done by applying quantitative analysis to recent historic share price volatility and correlation data using an index based model in order to provide a ‘best guess’ estimate of future risk. The premise behind this method is that the recent past is the best estimate of future events and as such, portfolio risk measurement has become defined by this ex-post approach.

This research paper discusses an alternative way of approaching the diverse small cap universe using a combination of qualitative stock level risk analysis combined with traditional quantitative methods to estimate ex-ante portfolio risk.

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