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Further applications of mean-variance optimization
Wesley Phoa
Solutions Portfolio Manager

 


In 1952, Harry Markowitz published “Portfolio Selection” and introduced mean-variance optimization, which helps investors construct portfolios modeling a maximum expected return for a given level of risk. This tool has profoundly influenced both academic work and practical investing since it was introduced. In this article, Capital Group solutions portfolio manager Wesley Phoa examines how mean-variance optimization can be used across a range of financial applications that could not have been anticipated in 1952.

  • Mean–variance optimization is a continuing source of new approaches and new tools for investing.

  • One new example is retirement glide-path design, traditionally seen as a multiperiod problem.

  • Another new example analyzes the return premium on illiquid assets in a portfolio context.

 


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Wesley Phoa is a solutions portfolio manager with 30 years of industry experience (as of 12/31/2023). He holds a PhD in pure mathematics from Trinity College at the University of Cambridge and a bachelor’s degree with honors from the Australian National University.

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