Insight from our Diversified Alternatives team to help clients navigate the markets and opportunities ahead.
Themes in Focus, September 2020
Welcome to the latest edition of our Market GPS: Alternative Perspectives, where we highlight what we hope to be thought-provoking views from across our Diversified Alternatives team. These articles are intended to have broad appeal; but may be particularly relevant for those investors considering how best to diversify their strategic portfolio allocations at a seminal moment in time for global markets.
We came into 2020 with a view that all the ingredients were in place for potentially significant moves in the market. Highly elevated political and economic risk, an ageing bull market, inverted yield curves, negative rates rattling investors, and unicorns falling short of expectations. We believed the extremely low levels of implied volatility failed to capture these potential risks. COVID-19, however, was a classic ‘left-hand tail risk’ – an unexpected event with significant ramifications for investment markets globally.
The scale, breadth and speed of market falls earlier this year cast the spotlight on some hitherto accepted paradigms of risk mitigation and asset allocation. With investors now reassessing the range of tools available to them, the argument to consider more sophisticated ‘alternative’ strategies has rarely been stronger.
In this edition of Perspectives, Mark Richardson looks at the rationale behind an ‘always on’ protection strategy in a portfolio, considering how different complementary instruments can potentially mitigate the impact of unforeseeable market risks. Andrew Kaleel and Maya Perone then introduce a new tactical addition to our range of ‘protection’ strategies, a dynamic ‘Tail’ hedging strategy that offers a cost-efficient alternative when risk (and protection costs) are relatively high.
Bonds have been the natural choice to use as a diversifier for equity allocations over the past two decades. Aneet Chachra and Steve Cain give a brief insight into why the negative correlation that underpins this relationship may not be as reliable as it once was. This naturally rolls into our final article from Natasha Sibley, who looks in more detail at the history of bond/equity correlations and considers how investors can tap the alternatives market to help build a portfolio with truly diversified performance drivers.
We hope you find this publication interesting, and we would be happy to discuss any of these ideas in more detail. We publish Perspectives on a six-monthly basis and seek to continue the dialogue with timely articles in the intervening months. As always, we welcome any feedback you may have.
Head of Diversified Alternatives
Insights From Our Global Team
Should investors always be protected? If so, how can this be implemented? In this article, Portfolio Manager Mark Richardson describes the construction of a multi-faceted 'protection' strategy designed to mitigate a large range of unforeseeable market risks.
How can we mitigate some of the challenges associated with systematic 'protection' strategies that are ‘always on’? In this article, Portfolio Managers Andrew Kaleel and Maya Perone discuss the team's new Tail hedge strategy and how it can be used to address some of these challenges.
The relationship between equities and bonds is a central tenet of modern market behaviour. In this article, Portfolio Manager Natasha Sibley considers whether investors should continue to take this easy source of diversification for granted.
Our Diversified Alternatives Capabilities
The Janus Henderson Diversified Alternatives Team is made up of 23 investment professionals situated in the UK, US, Australia and Singapore. The team is responsible for US$12.5 billion* in client assets and manages a range of investment solutions aimed at delivering specific outcomes tailored to meet the needs and constraints of clients. The team brings together a cross-asset class combination of alpha generation, risk management and efficient beta replication strategies, as well as the flexibility to create customised offerings. Current solutions include multi-strategy hedge funds, alternative risk premia, managed managed futures and both global commodities and equity enhanced index strategies.
*As at 30 June 2020