@article {Amenc47, author = {No{\"e}l Amenc and Felix Goltz and Adina Grigoriu}, title = {Risk Control Through Dynamic Core-SatellitePortfolios of ETFs: Applications to Absolute Return Funds and Tactical Asset Allocation }, volume = {13}, number = {2}, pages = {47--57}, year = {2010}, doi = {10.3905/jai.2010.13.2.047}, publisher = {Institutional Investor Journals Umbrella}, abstract = {Asset managers generally focus on diversification or returns prediction to create added value in portfolios of exchange-traded funds (ETFs). This article draws on dynamic risk-budgeting techniques to emphasize the importance of risk management when decisions to allocate to ETFs are made. Absolute return funds, in which the low-risk profiles of government-bond ETFs and conditional allocations to riskier equity ETFs can be combined to obtain portfolios that{\textemdash}beyond the natural diversification between stocks and bonds{\textemdash}provide upside potential while protecting investors from downside risk, are an initial application of ETFs to allocation decisions. A second application is risk control of tactical strategies. Dynamic risk budgeting is used to provide risk-controlled exposure{\textemdash}taking the manager{\textquoteright}s forecasts as a given{\textemdash}to an asset class. This article shows that, even if the manager is an excellent forecaster, this approach yields intra-horizon and end-of-horizon risk-control benefits considerably greater than those of standard tactical asset allocation.TOPICS: Portfolio theory, exchange-traded funds and applications, risk management, performance measurement}, issn = {1520-3255}, URL = {https://jai.pm-research.com/content/13/2/47}, eprint = {https://jai.pm-research.com/content/13/2/47.full.pdf}, journal = {The Journal of Alternative Investments} }