Have you ever found yourself searching for an asset class to use in the Black Litterman model, only to find we unfortunately don’t provide the market capitalization for that asset class? Well, just because you don’t have the market cap at your fingertips does NOT mean you can’t utilize the advantages of Black Litterman. Here’s a tip how you can utilize both the Black Litterman and Historical Models to build your efficient frontier and allocation when using asset classes that you don’t have market caps for in Zephyr AllocationADVISOR.
Step 1: In Zephyr AllocationADVISOR, open the Black Litterman Model and select an asset palette. Note, the palette you choose would not include the asset class with the missing market cap.
Step 2: Once you’ve selected the asset palette and input the palette risk premium and risk-free rate, click on the name of the case on the left. In the picture below the case name is “Allocation Case” and then click Create a Historical case from this case.
Step 3: This will open a Historical case with the return forecasts brought over from the Black Litterman. From here, click the Select Assets… button where you can select the additional asset you want to include. In the example below, we’ve selected a Hedge Fund to add to the portfolio. From there, click OK to see the efficient frontier.
Using this tip will allow you to take advantage of the Black Litterman model to create return forecasts for asset classes where the market caps are available and include assets in your portfolio where the market caps are not available or difficult to retrieve.
If you have any questions regarding this tip, please feel free to reach out to our Product Support team via phone at (800) 782-5323 and hit 2 or via e-mail at firstname.lastname@example.org.
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