Swedroe: Carry Factor Spans Assets

August 30, 2017

Baltas concluded: “The greater benefit from extending carry to a multi-asset concept is, in fact, the diversification potential from combining carry strategies from different asset classes. The fact that not all carry strategies fail at the same time renders the multi-asset carry portfolio robust to equity downside risk and volatility spikes.”

When it comes to the implementation of this concept, the fund my firm, Buckingham Strategic Wealth, recommends the AQR Style Premia Alternative Fund (QSPRX), incorporates a multi-asset approach to the carry trade, allocating 14% of its exposure to carry in bonds, currencies and commodities.


Carry signals are found to have predictive power for future asset returns, not just within FX, but across commodities, equity indexes and government bonds. Thus, carry offers an additional, unique source of return for investors.

Importantly, diversified multi-asset class carry strategies do not appear to have a significant exposure to downside risk, either with respect to their respective markets or to the broad equity market. This makes carry attractive for inclusion in diversified portfolios.

For those interested in the academic research supporting logical, risk-based explanations for the carry premium, the chapter on carry in “Your Complete Guide to Factor-Based Investing” provides a summary. The explanations presented include a logical resolution to the uncovered interest parity puzzle of the FX carry trade.

Larry Swedroe is the director of research for The BAM Alliance, a community of more than 140 independent registered investment advisors throughout the country.


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