Schweser page 12, Book-3, ProfessorsNote “Tilting refers to overweighting some risk factor while (usually) reducing exposure to another. For ex: The manager might feel one bond sector (CMBS) will perform well over the coming period and increase it’s weight in the portfolio while reducing the weight of another sector expected to underperform.” “Relative value strategies can entail identifying undervalued securities or entire sectors” Both look exactly the same thing said in a different way. Can someone please explain the real difference if there is any?
I think it’s saying that one would use relative value analysis to determine the sectors/securities that are expected to perform well (or poorly), and then you would tilt the portfolio in favor of (or away from) those sectors/securities.
My understanding: Relative value strategies entails ranking of sectors, issuers, issues based on their likely performance entwined with their individual characteristics and Capital Market Expectations. Therefore RV strategies can be helpful in active management, thus major risk factors like duration can vary substantially from the benchmark based on the view an analyst takes. Tilting can be used in passive and semi-active management wherein major risk factors like duration are kept constant with some tilts related to factors that may come up with sampling. Overall portfolios aim to follow their benchmarks.
Thanks, I think I get it now. In Tilting - the major risk factors like duration, etc are kept inline with the benchmark while tilting the portfolio by overweighing undervalued factors and underweiging overvalued factors. RVS - the major risk factor exposures like durations itslef can be betted differently from that of the benchmark.
Tilting modifies the weights in some benchmark. RV doesn’t need a benchmark. That’s more or less it.