The Case for Long-Only Agnostic Allocation Portfolios
20 Pages Posted: 20 Jun 2019
Date Written: June 12, 2019
We advocate the use of Agnostic Allocation for the construction of long-only portfolios of stocks. We show that Agnostic Allocation Portfolios (AAPs) are a special member of a family of risk-based portfolios that are able to mitigate certain extreme features (excess concentration, high turnover, strong exposure to low-risk factors) of classical portfolio construction methods, while achieving similar performance. AAPs thus represent a very attractive alternative risk-based portfolio construction framework that can be implemented in different situations, with or without an active trading signal.
Keywords: portfolio construction, minimum variance, maximum diversification, sparsity
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