Mean-Variance Investing with Factor Tilting

A number of investors and portfolio managers are increasing the presence of alternative assets in their portfolios to a level close to traditional assets, harbouring the new frontiers in asset management research, including new risk premia, alternative beta, multifactor models. We build an investment portfolio based on a combination of broad asset classes and selected investing factors. In this way, we can improve the Markowitzian optimization by tilting the asset allocation with manager expectations, taking advantage of factor lower volatility when compared to asset classes.