Michael Hunstad is Head of Quantitative Research for Northern Trust Asset Management. Michael and his team have produced a report which analyses risk in more than 200 portfolios and over a 1,000 equity strategies over a period of four years. They found that there are six drivers of unintended outcomes in portfolios, including uncompensated risk and unintended style biases. We speak with Michael about the report, how to avoid these traps and how the pandemic would affect the results. Enjoy! Overview of podcast with Michael Hunstad: 1:30 Starting out in investing 2:30 Changes in the hedge fund industry 4:00 Unrewarded risks in institutional portfolios are as high as 50pc of the portfolio 6:30 Unrewarded doesn’t mean unknown. To what degree do investors know about these risks? 8:20 Is it possible to get rid of unrewarded risk? 11:00 The Cancellation Effect, capacity and diversification. 13:00 Active share cancellation 16:30 It is not about how concentrated or diffuse a manager is, but what remains after the portfolio is put together 17:30 Unintended style biases. 18:30 We still have a high conviction in the value factor. We feel we are in a cycle and it is always darkest before dawn 20:45 I get concerned when I see the multiple dislocations that we see today 22:30 Chasing returns and manager selection 24:30 On return cycles of manager outperformance 27:00 Is manager blending an underestimated art? 28:45 Does this mean we should all just go passive and factors? 30:00 How would the pandemic affect the findings of the report? 30:40 When a risk is not properly priced, it is usually uncompensated 32:00 Pandemic and structural changes for the investment climate 33:00 We can see an increase in volatility spikes and it is accelerating 35:00 As a former algorithmic trader, I’m also concerned about the amount of algorithmic trading that is occurring at the moment 36:00 The future of equities is very much about how you manage these tail risk events.