Month: June 2020

When Alternatives to Passive Index Investing are Appropriate

/ Kiwi Investor / 2 Comments

There are a wide range of reasons for choosing an alternative to passive investing over and above the traditional industry debate that focuses on whether active management can outperform an index.

Reasons for considering alternatives include no readily replicable market index exists, available indices are unsuitable in meeting an investor’s objectives, and/or there are some imbedded inefficiency within the Index.

Under these circumstances a passive approach no longer becomes optimal nor appropriate.

Or quite simply, an active manager with skill can be identified, this alone is sufficient to consider an alternative to passive indexing.

Importantly, the decision to choose an alternative to passive investing is likely to vary across asset classes, investors, and time.

Also, the active versus passive debate needs to be broadened, which to date seems too narrowly focused on comparing passive investments with the average returns from active equity managers.

Framework for choosing an Alternative to Passive Investing

This article by Warren and Ezra, When Should Investors Consider an Alternative to Passive Investing?, seeks to reconfigure and broaden the active versus passive debate.

They do this by presenting a framework for a more comprehensive consideration of alternatives to passively replicating a standard capitalisation-weighted index in any particular asset class.  

In doing so they provide examples of circumstances under which a particular alternative to passive management might be preferred.

They offer no conclusions as to whether any specific approach is intrinsically superior. “Indeed, the overarching message is that best choices can vary across asset classes, investor circumstances, and perhaps even time.”

Warren and Ezra provide the following Framework for choosing an Alternative to Passive Investing:

Their framework appreciably widens the range of reasons for choosing an alternative to passive investing.

As can be seen in the Table above, they have identify five potential reasons investors should seek an alternative to passive index.

The first three reflect situations where a passive index is either unavailable or unsuitable, and two relate to investor expectations that active management can outperform passive benchmarks.

Below I have provided a description of the five reasons investors should seek an alternative to passive index.

Back ground Comments

Warren and Ezra provide some general comments on the state of the industry debate:

  • They think it is unreasonable to base broad conclusions about the relative efficacy of passive indexing on active managers’ average results in a single asset class or subclass, such as U.S. equities. They note, “What holds true in one market segment may not hold in another.”
  • They also object to the “implicit assumption that in the absence of demonstrable stock-selection skills among managers, passive index replication provides optimal exposure for investors.” This assumption does not take into account differences in investor objectives and circumstances. This is one of the core points of their article.

They maintain, what is missing in the industry debate is “recognition that appropriate structuring and management of investments may well depend on investors’ relative situations.”

Some Context

The default position for passive investing is a capitalisation-weighted (cap-weighting) index, such as the New Zealand NZSX 50 Index and US S&P 500.

Although somewhat technical, the application of a cap-weighting index rests on the three assumptions outlined below.

A breach in any of the following assumptions could justify giving consideration to an alternative approach to passive indexing.

Market efficiency.

Cap-weighting should be chosen under an assumption of perfectly efficient markets, where prices are always correct. Investors may consider alternatives if they believe markets are not fully efficient and that the repercussions of any inefficiencies can be either avoided or exploited.

Cap-weighting is aligned with investor objectives.

It is assumed that cap-weighting indices are aligned with investor objectives. However, this is not always the case. As we see below, a Defined Benefit plan most likely has different objectives relative to a cap-weighted fixed income index.

The same is true for an endowment, insurance company, or foundation.

Index efficacy.

The view of passive indexing as the default assumes that an index is available for the intended purpose. The theoretical view calls for indexes that effectively embody the market portfolio. The industry view requires indexes that deliver the desired type of asset class exposure. In practice, it is possible that for a given asset class no market index exists, or that available indexes have shortcomings in their construction.

The five reasons below for when investors might prefer an alternative to a passive approach are in situations where these three critical assumptions for passive indexing are broken. In such situations passive index is likely to be inappropriate.

The reasons below, also highlight the point that the active versus passive debate often fails to take into account differences in investor objectives and circumstances. The debate needs to be broadened.

Reason #1: No Readily Replicable Index is Available

Passive investing assumes an effective index exists that can be easily and readily replicated.

In some instances, an appropriate index to replicate is simply not available, for example:

  • Unlisted assets such as Private Equity, unlisted infrastructure and direct property
  • Within listed markets were a lack of liquidity exists it becomes difficult to replicate the index, such as small caps, emerging market equities, and high-yield debt.

In these incidences, although a passive product may be available, they “might not deliver a faithful replication of the asset class at low cost.” Accordingly passive investing is not appropriate.

Reason #2: The Passive Index Is at Odds with the Investor’s Objectives

Often a passive index is badly aligned with an investor’s objectives. In such cases an alternative approach may better meet these objectives, often requiring active management to deliver a more tailored investment solution.

By way of example:

Defined Benefit Pension Plan and tailored fixed-income mandates.

Best practice for a Defined Benefit (DB) plan is to implement a tailored fixed income mandate that closely matches expected liabilities.

In such a case a passive index approach is not appropriate given the duration and cashflows of the DB plan are unique and highly unlikely to be replicated by an investment into a passive index based on market capitalisation weights.

DB plan managers may also likely prefer more control over other exposures, such as credit quality relative to a passive index.

Such situations also exits for insurance companies, endowments, and foundations.

Notably, an individual investor has a unique set of future liabilities, represented by their own cashflows and duration. Accordingly, investing into a passive market index product may not be appropriate relative to their investment objectives. A more active decision should be made to meet cashflow, interest rate risk, and credit exposure objectives.

Listed infrastructure provides another example where the passive index may be at odds with the investor’s goals. Some investors may want to target certain sectors of the universe that provides greater inflation protection, thus requiring a different portfolio relative to that provided by a passive market index exposure.

The article also provides example in relation to Sustainable and ethical investing and Tax effectiveness.

Reason #3: The Standard Passive Index is Inefficiently Constructed

Where alternatives are available, it makes no sense to invest in an inefficient index. This represents a suboptimal approach, particularly if an alternative can deliver a better outcome.

The article presents two potential reasons an index might be inefficient and proves three examples.

They comment that an index might be inefficient for the following reasons:

  • the index is built on a narrow or unrepresentative universe; and
  • the index is constructed in a way that builds in some inefficiency.

As they highlight, these issues are best outlined through the discussion of examples. I briefly cover two.

Equities

Alternative indexing/passive approaches such as factor investing and fundamental investing are “active” decision relative to a market-capitalised index.

The basis for these alternative approaches is that equity capital market indices are flawed (Fundamental Investing) and inefficient (e.g. factor investing such as value and small caps outperform the broader market over time).

Fixed income

There are many shortcomings of fixed-income indices, the article focuses on two:

  • Fixed income indices do not fully represent the asset class. Therefore, more efficient portfolios may be built by including off-benchmark securities.
  • The largest issuers dominate fixed income indices and it can be argued these are the less attractive governments/companies to invest in, because they are most in need of funding (and hence of lower quality), or are issuing debt to take advantage of low interest rates, which are unattractive to the investor.

Reasons #4 and #5 The final two reasons are more aligned with the traditional question of whether investors can access managers that can be expected to outperform the index.

Reason #4 features that could lead to active investment managers outperforming the passive alternative in aggregate.

Active management is often defined as a zero-sum game before transaction costs, and a negative-sum game after transaction costs. Therefore, active management as a whole cannot outperform.

However, this dynamic need not apply to all investors and it is quite likely that there is a subsector of investors that can consistently outperform the index.

Therefore, a review of the environment in which managers operate might establish if they are able to maintain a competitive advantage.

The following features are outlined in the article to support such a situation:

Market inefficiency situations

Market inefficiencies offer the potential for active managers to outperform the index, nevertheless managers need to be appropriately placed to capture any excess rewards of these inefficiencies.

The following situations may provide a manager with a competitive advantage:

  • Information advantage: An active manager could have an advantage where the market is “widely populated by less-informed investors” e.g. emerging markets and small caps.
  • Preferential access to desirable assets: e.g. where active managers have better access to initial public offerings and sourcing lines of stock. In unlisted markets private equity manager has well established relationships and ability to provide capital and/or appropriate skills.
  • Economic value-add: e.g. in unlisted assets active management can add value to the underlying asset.

Opportunities arising from differing investor objectives

Opportunities for active management to benefit may exist when:

  • Some investors are comfortable with earning below-market returns e.g. investors who place greater weight on liquidity or are not willing to accept certain risk exposures
  • Investors have differing time horizons e.g. value investors exploit short-term focus of markets

Index fails to cover the opportunity set

The article makes the following points under this heading:

  • There is the potential to outperform by investing outside the index whenever the index does not provide a comprehensive coverage of the available market
  • The intensity of competition is also a factor in success or otherwise of an active manager. For example, the results on manager skill of the highly institutionalise US market may not translate into other markets and asset class where competition is less fierce.
  • Cyclicality of markets needs to be considered, with managers likely to perform in different market environments i.e. they tend to underperform when cross-sectional volatility is low, or markets are driven more by thematic forces. As they note, this has limited relevance in the long run, but may add a “timing element to any evaluation of active versus passive investment.”

Reason #5: Skilled Managers Can Be Identified

Where a skilled manager can be identified, this is a sufficient condition to adopt an alternative to passive management alone.

Nevertheless, the ability and capacity to identify a skilled manager is necessary where an alternative to passive management is to be contemplated.

The discussion makes the following points:

  • At the very least bad managers should be avoided
  • Markets can never be perfectly efficient, therefore some room exists for outperformance through skill
  • Not all fund managers are created equal, some are good and some are bad
  • The research capability and skill to identify and select a manager is an important consideration.

Implementation and Costs

It is important to note, the framework aims first to work out whether there is a case for rejecting a passive index default. The next step is then to ask how much an investor is willing to pay and how the alternative can be accessed.

“In most cases this alternative will be what is traditionally known as “actively managed investing.” In other circumstances this need not be the case, or the skills-based component may be minor.”

The cost versus the benefit and accessing the preferred alternative approach to passive index are key implementation issues.

Concluding Comments

Warren and Ezra make the point that too much of the debate on active versus Passive relies on the analysis of US equities, they think it is unreasonable to base broad conclusions about the efficiency of passive indexing on a single asset class or subclass.

They are not alone on this, as outlined on this previous Kiwi Investor Blog Post, there are many studies that challenge the conventional wisdom of active management.

For the record, please see this Post, Kiwi Wealth caught in an active storm, on my thoughts on the active vs passive debate, we really need to move on and broaden the discussion. The debate is not black vs White, as highlighted in this article, there are large grey areas.

Happy investing.

Please see my Disclosure Statement

 

Global Investment Ideas from New Zealand. Building more Robust Investment Portfolios.

Preparing your Portfolio for a period of higher inflation

/ Kiwi Investor / 7 Comments

Although inflation is not a threat currently the case for a period of higher than average inflation can be easily made.

From an investment perspective:

  1. A period of high inflation is the most challenging period for traditional assets e.g. equities and Fixed Income;
  2. Before the inflation period, as we move from the current period of deflation there is a period of reflation, during which things will feel okay for a while; and
  3. During the higher inflation period the leadership of investment returns are likely to change.

These are some of the key insights from a recent Man article, Inflation Regime Roadmap.

Following an extensive review of previous inflation/deflationary episodes Man clearly articulate the case for a period of higher inflation is ahead.

As Man note the timing of moving to a higher inflation environment is uncertain.

As outlined below, they provide a check list of factors to monitor in anticipation of higher inflation.

Nevertheless, although the timing of a higher inflation environment is uncertain, Man argue the need for preparation is not and should commence now.

Investors need to be assessing the robust of their portfolios for a higher than average inflation environment now.

Man identify several strategies they expect will outperform during a period of higher inflation.

Investment Implications

The level and direction of inflation is important.

This is evident in the diagram below, which Man refer to as the Fire and Ice Framework.

The performance of investment strategies differs depending on the inflation environment.

As can be seen in the diagram, the traditional assets of equities and bonds (fixed income securities) have on average performed poorly in the inflation periods (Fire).

Also, of note is that the benefits of Bonds in providing portfolio diversification benefits are diminished during these periods, as signified by the positive stock-bond correlation relationship.

As Man note, and evident in the diagram above, the path to inflation is via reflation, so things will feel good for a while.

Importantly, there will be a regime change, those investment strategies that have flourished over the last 10 years are likely to struggle in the decade ahead.

The expected new winners in a higher inflation environment are succinctly captured in the following diagram.

As can been seen in the Table above, Man argue new investment strategies are needed within portfolios.

These include:

  • Alternative risk premia and long-short (L/S) type strategies, rather than traditional market exposures (long only, L/O) of equities and fixed income which are likely to generate real negative returns (See Fire and Ice Framework).
  • Real Assets, such inflation-linked bonds, precious metals, commodities, and real estate.

Man also expect leadership within equity markets to change toward value and away from growth and quality. Those companies with Pricing Power are also expected to benefit.

Several pitfalls to introducing the new strategies to a portfolio are outlined in the article.

Time for Preparation is now

As mentioned the timing of a transition to a higher inflation environment is uncertain. Certainly markets are not pricing one in now.

Nevertheless, the preparation for such an environment is now. Man highlight:

  • the likelihood of an inflationary regime is much higher than it has been in recent times;
  • the investment implications of this new regime would be so large that all the things that have worked are at risk of stopping to work; and
  • given that markets are not priced for higher inflation at all, the market inflationary regime may well start well before inflation actually kicks in, given the starting point.

Man believe investors have some time to prepare for the regime shift. Nevertheless, those preparations should start now.

In addition, Man provide a check list to monitor to determine progress toward a higher than average inflation environment.

Inflation Check List to Monitor

The paper undertakes a thorough review of different inflation regimes and the drivers of them. The review and analysis on inflation makes up a large share of the report and is well worth reviewing.

Man identify five significant regime changes to support their analysis:

  1. Hoover’s Depression and Roosevelt’s New Deal (Deflation to Reflation)
  2. WW2-1951 Debt Work-down (Inflation to Disinflation).
  3. The Twin Oil Shocks of the 1970s (Inflation).
  4. Paul Volcker (Disinflation).
  5. The Global Financial Crisis (Deflation to Reflation and back again).

As noted in the list above, we are currently in a deflationary environment (again) – Thanks to the Coronavirus Pandemic.

Man expect the deflationary forces over the last decade are likely to fade in the years ahead. As a result inflation is likely to pick up. Central banks are also likely to allow an overshoot relative to inflation targets. Their independence could also be at risk.

They argue the current deflationary status quo is unsustainable, high debt levels leading to underinvestment in product assets resulting in lower levels of spare capacity and rising levels of inequality around the world will lead to policy responses by both governments and central banks that will result in a period of higher than average inflation.

They provide a checklist of factors to monitor, which includes:

  1. Inflation Momentum, which is broadly neutral currently
  2. Measures of inflation in the pipeline, which are currently deflationary
  3. Economic slack, which is large and heavily deflationary at present
  4. Labour market tightness, which is loose and heavily deflationary presently
  5. Wage inflation, currently neutral to inflationary
  6. Inflation Expectations, sending mixed signals at this time

Man conclude their dashboard is more deflationary than inflationary. They also believe this could change quite rapidly if demand picks up faster than expected.

Concluding Remarks

Man’s view on the outlook for inflation are not alone, a number of other organisations hold similar views.

Although inflation is not a problem now, it is highly likely to become of a greater concern to investors than recent history.

This will likely lead to a change in investment return leadership. Those investment strategies that have worked well over the last 10 years are unlikely to work so well in the decade ahead. Man propose some they think will perform better in such an environment, there are likely others.

A review of current portfolio holdings should be undertaken to determine the robustness to a different inflation regime. This is a key point.

The performance of real assets in different economic environments was covered in a previous Post, Real Assets offer real diversification benefits, this Post covered analysis undertaken by PGIM.

Happy investing.

Please see my Disclosure Statement

Global Investment Ideas from New Zealand. Building more Robust Investment Portfolios.

Hedged Funds vs Equities – lessons from the Warren Buffet Bet Revisited

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“The Bet” received considerable media attention following the 2017 Berkshire Hathaway shareholder letter in 2018.

To recap, the bet was between Warren Buffet and Protégé Partners, who picked five “funds of fund” hedge funds they expected would outperform the S&P 500 Index over the 10-year period ending December 2017. Buffet took the S&P 500 to outperform.

The bet was made in December 2007, when the market was reasonably expensive and the Global Financial Crisis (GFC) was just around the corner.

Buffet won.  The S&P 500 easily outperformed the Hedge Fund selection over the 10-year period.

There are some astute investment lessons to be learnt from this bet, which are very clearly presented in this AllAboutAlpha article, A Rhetorical Oracle, by Bill Kelly.

Before reviewing these lessons, I’d like to make three points:

  1. I’d never bet against Buffet!
  2. I would not expect a Funds of Funds Hedge Fund to consistently outperform the S&P 500, let alone a combination of five Funds of Funds.
  3. Most if not all, investor’s investment objective(s) is not to beat the S&P 500. Investment Objectives are personal and targeted e.g. Goal Based Investing to meet future retirement income or endowments

This is not to say Hedged Funds should not form part of a truly diversified investment portfolio.  They should, as should other alternative investments.

Nevertheless, I am unconvinced Hedge Fund’s role is to provide equity plus like returns. 

By and large, alternatives, including Hedge Funds, offer a less expensive way of providing portfolio protection as their returns “keep up” with equities, see the previous Kiwi Investor Blog Sharemarket crashes – what works best in minimising losses, market timing or diversification. 

One objective in allocating to alternatives is to add return sources that make money on average and have low correlation to equities.  Importantly, diversification is not the same thing as “hedging” a portfolio

Now, I have no barrow to push here, except advocating for the building of robust investment portfolios consistent with meeting your investment objectives. The level of fees also needs to be managed appropriately across a portfolio.

In this regard and consistent with the points in the AllAboutAlpha article:

  1. Having a well-diversified portfolio is paramount and results in better risk-adjusted returns over time.

Being diversified across non-correlated or low correlated investments is important, leading to better risk-adjusted outcomes. 

Adding low correlated investments to an equities portfolio, combined with a disciplined rebalancing policy, will likely add value above equities over time.

The investment focus should be on reducing portfolio volatility through true portfolio diversification so that wealth can be accumulate overtime. 

Minimising loses results in higher returns over time.  A portfolio that falls 50%, needs to gain 100% to get back to the starting capital.  This means as equity markets take off a well-diversified multi-asset portfolio will not keep up.  Nevertheless, the well diversified portfolio will not fall as much when the inevitable crash comes along.

It is true that equities are less risky over the longer term.  Nevertheless, not many people can maintain a fully invested equities portfolio, given the wild swings in value (as highlighted by Buffett in his Shareholder Letter, Berkshire can fall 50% in value).

100% in equities is often not consistent with meeting one’s investment objectives.  Buffet himself has recommended the 60/40 equities/bond allocation, with allocations adjusted around this target based on market valuations.

I am unlikely to ever suggest to be 100% invested in equities for the very reason of the second point in the article, as outlined below.

  1. Investment Behavioural aspects.

How many clients would have held on to a 100% equity position during the high level of volatility experienced over the last 10-12 years, particularly in the 2008 – 2014 period.  Not many I suspect.  This would also be true of the most recent market collapse in 2020.

The research is very clear, on average investors do not capture the full value of equity market returns over the full market cycle, largely because of behavioural reasons.

A well-diversified portfolio, that lowers portfolio volatility, will assist an investor in staying the course in meeting their investment objectives.

An allocation to alternative strategies, including a well-chosen selection of Hedge Funds, will result in a truly diversified Portfolio, lowering portfolio volatility.  See an earlier Post, the inclusion of Alternatives has been an evolutionary process, not a revolution.

Staying the course is the biggest battle for most investors.  Therefore, take a longer-term view, focus on customised investment objectives, and maintain a truly diversified portfolio.

This will help the psychological battle as much as anything else.

I like this analogy of using standard deviation of returns as a measure of risk. It captures the risks associated with a very high volatile investment strategy such as being 100% invested in equities:

“A stream may have an average depth of five feet, but a traveler wading through it will not make it to the other side if its mid-point is 10 feet deep. Similarly, an overly volatile investing strategy may sink an investor before she gets to reap its anticipated rewards.”

Happy investing.

Please see my Disclosure Statement

Global Investment Ideas from New Zealand. Building more Robust Investment Portfolios.

Private Equity receives a boost from the US Department of Labor – significant industry potential

/ Kiwi Investor / 1 Comment

Based on the US Department of Labor (DOL) guidance US retirement plans, Defined Contribution (DC), can include certain private equity strategies into diversified investment options, such as target date or balanced funds, while complying with ERISA (laws that govern US retirement plans).

 

This is anticipated to result in better outcomes for US investors.

It is also anticipated to provide a further tailwind for the Private Equity sector which is expected to experience significant growth over the decade ahead, as outlined

 

Private equity investments have long been incorporated in defined benefit (DB) plans, DC plans, 401(k) retirement plans similar to KiwiSaver Funds offered in New Zealand and superannuation funds around the world, have mainly steered away from incorporating Private Equity in their plans due to litigation concerns.

By way of summary, the DOL provides the following guidance. In adding a private equity allocation, the risks and benefits associated with the investment should be considered.

In making this determination, the fiduciary should consider:

  1. whether adding the asset allocation fund with a private equity component would offer plan participants the opportunity to invest their accounts among more diversified investment options within an appropriate range of expected returns net of fees and the diversification of risks over a multi-year period;
  2. whether using third-party investment experts as necessary or managed by investment professionals have the capabilities, experience, and stability to manage an asset allocation fund that includes private equity effectively;
  3. limit the allocation to private equity in a way that is designed to address the unique characteristics associated with such an investment, including cost, complexity, disclosures, and liquidity, and has adopted features related to liquidity and valuation.

It is worth noting that the SEC (U.S. Securities and Exchange Commission) has adopted a 15% limit on investments into illiquid assets by US open-ended Funds such as Mutual Funds (similar to Unit Trusts) and ETFs.

 

In addition, the DOL suggests consideration should be given to the plan’s features and participant profile e.g. ages, retirement age, anticipated employee turnover, and contribution and withdrawal patterns.

The DOL letter outlines a number of other appropriate considerations, such as Private Equity to be independently valued in accordance with agreed valuation procedures.

It is important to note the guidance is in relation to Private Equity being offered as part of a multi-asset class vehicle structure as a custom target date, target risk, or balanced fund. Private Equity cannot be offered as a standalone investment option.

The DOL letter can be accessed here.

 

Size of the Market and innovation

As noted DC plans have been reluctant to invest in Private Equity, by contrast DB plans allocate 8.7% of their assets to Private Equity, based on a 2019 survey of the US’ 200 largest retirement plans.

It is estimated that as much as $400 billion of new assets could be assessed by Private Equity businesses as a result of the DOL guidance, as outlined in this FT article.

Increased innovation is expected, more Private Equity vehicles that offer lower fees and higher levels of liquidity will be developed.

A number of Private Equity firms are expected to benefit.

For example, Partners Group and Pantheon stand to benefit, see below for comments, they launched Private Equity Funds with daily pricing and liquidity in 2013. These Funds were designed for 401(k) plans.

As you would expect, they reference research by the Georgetown Center for Retirement Initiatives which concludes that including a moderate allocation to private equity in a target-date fund could increase the participant’s annual retirement income by at least 6%.

They also comment, private markets provide valuable diversification in an investment portfolio in light of a shrinking public markets sector that has seen the number of US publicly-traded companies decline by around 50% since 1996.

This observation is consistent with one of the key findings from the recently published CAIA Association report, The Next Decade of Alternative Investments: From Adolescence to Responsible Citizenship.

The DOL guidance will provide another tailwind for Private Equity.

 

For those interested, this paper by the TIAA provides valuable insights into the optimal way of building an allocation to Private Equity within a portfolio.

 

Potentially significant Industry Impact

The DOL Letter has been well received by industry participants as outlined in this P&I article.

The article stresses that the guidance will help quell some sponsor’s litigation fears and  with a good prudent process Private Equity can be added to a portfolio.

 

The DOL believes the guidance letter “helps level the playing field for ordinary investors and is another step by the department to ensure that ordinary people investing for retirement have the opportunities they need for a secure retirement.”

 

The DOL Letter is in response to a Groom Law Group request on behalf of its clients Pantheon Ventures and Partners Group, who have developed private equity strategies that can accommodate DC plans. The DOL specifically referenced Partners Groups Funds and commented their Private Equity Funds are “designed to be used as a component of a managed asset allocation fund in an individual account plan.”

Partners Group said in a statement that the DOL has taken “a major step toward modernizing defined contribution plans and providing participants with a more secure retirement. At a time when working families are struggling to save, this guidance gives fiduciaries the certainty they need to finally provide main street Americans access to the same types of high-performing, diversifying investments as wealthy and large institutional investors, all within the safety of their 401(k) plans.”

Further comments by Partner Group can be found here.

 

Happy investing.

Please see my Disclosure Statement

 

Global Investment Ideas from New Zealand. Building more Robust Investment Portfolios.