Portfolio Blender: Blending Qualitative Expectations in Portfolio Optimization

Abstract

This note presents the Blender, a concept that was developed at Unigestion by the Quantitative Research Hedge Fund Team. In the context of portfolio optimization we propose Blended portfolios as an alternative to efficient portfolios.

Albeit Blended portfolios are sub-optimal in the mean-variance sense, they have the property of being less ''extreme'' in the allocations proposed. The Blender approach is also an elegant and simple way to design a portfolio optimization process which amplifies the synergy between qualitative expectations and numerical techniques.

The purpose of this note is to explain, technically, the concepts that define the Blender. Although the concepts presented in this note have been implemented in the form of a Matlab class, we do not intend to explain here how to use the class.

Keywords: Black-Litterman, Portfolio Optimization, Hedge Funds, Qualitative Views

JEL Classification: G1, C6, C8, C9