An introduction to “Expected Returns” by Antti Ilmanen

The subtitle is “An Investor’s Guide to Harvesting Market Rewards”.

Executive summary

I don’t hold myself as being much at forecasting, but I predict that this will be a classic that many of us will go back to and consult periodically for years to come.


Antti does better than I could have at describing the aim of the book.  Here are a couple of quotes (page 17):

My hope is that this book improves the reader’s understanding of expected returns while not adding to overconfidence.  With better understanding comes a healthy respect for investment risks.  I do not denounce risk taking, since it is the main way to enhance long-run returns, but investors should choose carefully which risks to take and how much of each, accepting them mainly when they are well rewarded.

Striving to build a bridge between academic and practitioner worlds, this book focuses on intuition and contains almost no equations and only very basic statistics.  For many academics the book will thus seem insufficiently rigorous, while for some practitioners it may be too intense.  My target audience, unsurprisingly, is in the middle: experienced professional investors still hungry to learn, including top-down asset allocators and fund trustees — as well as advanced finance students in CFA and MBA programs.


The book uses the image of a cube (think Rubik’s cube) with each face divided into four.

One face is for asset class:

  • stocks
  • government bonds
  • credits
  • alternatives

Another face is for strategy:

  • value
  • carry
  • trend
  • volatility

The final face is for return driver:

  • growth
  • inflation
  • illiquidity
  • tail risks


There are several instances where low volatility strategies are shown to be useful.  Figure 19.4 on page 381 is particularly interesting.

The Foreword is written by Cliff Asness.  Once you read it, you are destined to remember the first two sentences.


There is an elephant connection in the book, hence:

Throw yourself in the midst of danger but keep one eye open at night

from “Elephants” by Rachael Yamagata

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