This website uses cookies in order to improve user experience. If you close this box or continue browsing, we will assume that you are happy with this. For more information about the cookies we use or to find out how you can disable cookies, see our Cookies Notice.

Hedging our bets

We live in uncertain times. How do we aim to protect our portfolios as we head into 2017?

Recent political upsets have served as a reminder, if any was needed, that one needs to pay particular attention to the hidden risks which can build up within alpha-seeking portfolios.

Our current overall positioning has a defensive look to it. We have reinforced our underweight view of risk-centric equity long/short allocations. In contrast, our view on the outlook for CTAs has moved to outright positive based on our central case of an increase in asset-price volatility going into year-end as capital markets cope with a probable U.S. interest-rate hike and digest continuing political uncertainty.

In such times, discretionary macro and CTAs require further disaggregation to zoom in on approaches that have fared better in policy-driven markets. In particular, our CTA book is biased towards shorter-term trend-following strategies. These have shown themselves more agile at rotating exposure quickly as trends changed or new trends emerged. For example, shorter-term and counter-trend CTA strategies have done a good job at registering outsized positive gains during the January selloff and the immediate aftermath of Brexit. In contrast, we feel that it is part of our mandate to steer our portfolios away from consensus-type positions that are currently popular within longer-duration CTA strategies.

Mindful of the need to reduce correlation with traditional credit investing, we have also focused in on some of the more esoteric and less liquid strategies in this space. These include areas such as litigation finance where the returns achievable may be both interesting and less aligned with the ever more policy-driven traditional credit markets. All this has served us well in 2016. It may also help us to avoid or even profit from the surprises we may encounter on an all too regular basis, as we head into 2017.

Related Articles

May 24, 2018 New Macro Outlook

Italy's new coalition

Italian political turmoil might prove less worrisome than many think.

May 18, 2018 New Chart of the week

Chart of the week

Even U.S. corporations fear the impact of Donald Trump's trade politics

May 17, 2018 CIO Special

Free trade under attack

Common misconceptions and lessons for investors

May 17, 2018 Macro Outlook

A Closer Look

U.S. fiscal prospects: daunting challenges

May 11, 2018 Chart of the week

Chart of the week

Slowly, but surely inflation expectations are creeping up

May 04, 2018 Chart of the week

Chart of the week

Spain’s Eurozone journey: From growth leader to crisis and back to leader

May 03, 2018 Focus Topic

Rising interest rates

Will rates unrattle equity markets?

May 03, 2018 Investment Traffic Lights

Investment traffic lights

Our tactical and strategic view

Apr 30, 2018 Equity

Americas CIO View

Volatility: Be contrarian short-term, but respect it longer-term

Apr 27, 2018 Chart of the week

Chart of the week

U.S. bond yields leave German yields further behind. Is the dollar following suit?

Apr 24, 2018 Equity

Americas CIO View

Sizing up Banks and Tech

Apr 20, 2018 Chart of the week

Chart of the week

Global trade remains in excellent shape

Apr 17, 2018 Macro Outlook

As good as it gets?

So far, our upbeat base case for the global economy is looking good

Apr 17, 2018 Multi Asset

Managing volatility

The markets' increased volatility should be manageable.

Apr 17, 2018 Letter to Investors

One more year

Markets are shaky, but a bear market is unlikely without recession.

Apr 17, 2018 Forecasts

Our forecasts

All forecasts at a glance

Apr 16, 2018 Fixed Income

Pockets of opportunity

We continue to see opportunities, especially in high yield. Buy the dips.

Apr 16, 2018 Equity

Hold your nerve

Based on our growth and interest-rate forecasts, we remain bullish on stocks.


Please let us know what you think about this article/page.