Investors’ risk mitigation strategies against equities were severely put to the test in the first quarter of 2020, when the COVID-19 induced financial crisis brought the prolonged equity market bull run to an abrupt halt.
Uncharacteristically, the steep and rapid decline of equity markets in March was soon followed by a surprisingly quick recovery, despite bleak economic fundamentals. The market was further distorted by aggressive fiscal and monetary policies, exacerbating the dis-connect between markets and the economy.
Without question, most portfolios suffered significantly.
The key question relates to the extent which investors’ portfolios were protected (or otherwise) during this period of volatility.
- How effective are the fund’s defensive and risk mitigation strategies?
- To what extent have they limited the damage as a result of the market collapse?
- Conversely, have they prevented investors from riding the swift market recovery in March/April?
- Has the advent in financial technology and availability of data helped investors make more timely decisions?
Risk Mitigation Strategies
Risk mitigation or diversifying strategies can broadly be defined by labels such as hedge funds and liquid alternatives. It may also include alternative beta, risk premia, risk parity and multi-asset funds. Plus an esoteric range of volatility and tail-risk hedging strategies.
These strategies may be further blended, combining long duration bonds with momentum, systematic global macro and possibly alternative risk premia.
Dispersion of Performance
A recent observation of these strategies indicates a wide dispersion of performance, which could be attributed to
- Types of strategies
- Manager selection
- Implementation approaches
Additionally, how repeatable are strategies that have done well in protecting portfolios in the recent period, given the changing market conditions?
As part of [i3] Pivot, we are pleased to convene an investor roundtable to take stock of the current role of risk mitigation strategies in the portfolio and their potential deployment in the uncertain future.
This roundtable is co-hosted with Aberdeen Standard Investments.
Enquire about this event