When investment managers talk about portfolios they always try to accentuate the value-add or "alpha" they are purportedly generating. Yet, in efficient markets the vast majority of a given portfolio's returns will be derived from a set factor exposures or "betas". There are many such exposures: market beta, value, growth, momentum/trend, quality, size, duration, credit, etc. But at the end of the day, as Chris Cole from Artemis Capital, points out everyone is fundamentally making a bet on one thing: volatility...mostly by shorting volatility. Even in a highly diversified portfolio, most asset classes and strategies are short volatility, i.e., on average, they perform worse or lose value during periods when volatility rises. Only a few strategies are actually long volatility, including short bias, arbitrage (M&A, convertible, statistical arbitrage, etc.), and systematic macro (technically long gamma or volatility of volatility). This below chart (click to enlarge) highlights what we mean:
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