An ICONIC Funds Research Report
Robert Richter, CFA
Whilst the methodologies for portfolio management and asset allocation have been examined extensively in countless empirical studies, digital assets and crypto currencies have not received proper coverage yet. Since this asset has a strong growth history in recent years, this report is designed to cover this research gap.
The main goal of this research report is to examine the impact an allocation of crypto currencies has on traditional and alternative investment portfolios. The report not only investigates returns, but also considers the impact on correlation, standard deviation and volatility. In the interest of providing a tangible outcome, this report analyzes two time frames, the past decade from 01.01.2009 to 31.12.2019 and the past year 01.01.2019 to 31.12.2019.
The hypothesis underlying this report is that the Sharpe Ratio, a common measurement for risk-adjusted returns as a function of price volatility, increases for all portfolio allocation models by including crypto currencies in the asset allocation strategy. Furthermore, it is expected that crypto currencies not only increase Alpha of the given portfolios but decrease any systematic risk (Beta) through almost zero correlation with traditional or alternative asset classes.
To examine the impact crypto currencies have on investment portfolios, this report investigates different portfolio structures, with particular focus on the following investment models: a traditional stock/bond portfolio (with weights of 50/50 and 80/20), a balanced portfolio (stocks/ bonds/real estate/gold/ commodities), an endowment model portfolio; a family office/high net worth individuals portfolio and a pension fund portfolio.