Our multi asset solutions are designed to help investors achieve their investment goals against a backdrop of lower expected returns on traditional assets and increasing risk.


Introduction

Multi asset strategies invest across multiple asset classes to control risk, but their goals and how they achieve them can vary considerably. At Unigestion, we aim to deliver consistent returns in all market conditions using an innovative, risk-based investment approach that looks beyond conventional risk measures.

Our multi asset strategies allocate both strategically and dynamically across an expanded universe of risk premia to reduce dependence on equities and bonds. Collectively, they can fulfil a range of outcomes for clients, from income to growth, but all share a single objective: to protect our clients’ capital on the downside while exploiting opportunities in upward-trending markets.

The key to performing in all market conditions lies in how investment risk is managed, which is why risk analysis is central to everything we do. All our multi asset strategies are built on a unique, macro risk-based investment framework that combines the rigour of a systematic approach with the dynamism that our fundamental expertise can bring.

We manage multi asset strategies across both pooled and segregated mandates. With over 60% of our total assets managed in customised solutions, we have a proven ability to understand clients’ objectives and design strategies tailored to their needs.



MULTI ASSET EVOLUTION

After years of strong returns in equities and bonds, valuations are stretched and traditional asset classes are unlikely to deliver the outsized returns of the past decade. An updated, more nuanced understanding of risk and diversification is required to navigate more volatile markets going forward.

Historically, traditional balanced solutions (such as 50% in equity and 50% in bonds) performed well, delivering similar returns to equities with half the risk. However, we believe these traditional models are overly concentrated in growth assets, which can make them particularly vulnerable as volatility returns. Furthermore, their investment universe tends to be relatively restrictive by focusing on traditional risk premia, exposing these strategies to today’s high valuation environment.

We believe that two investment pillars comprise the most robust way to manage multi asset portfolios as markets become more complex:

  • Enhanced diversification
  • Dynamic risk management




ENHANCED DIVERSIFICATION

Our approach is based on a long-term, strategic allocation framework that exploits variation in risk premia performance across different macroeconomic conditions.



  • Building an ‘all weather’ portfolio

Our proprietary research shows that different risk premia perform better in different macroeconomic conditions. For example, government bonds will generally outperform equities in recessionary periods. Likewise, episodes of market stress are usually detrimental to yield capture strategies.

We have also observed that the prevailing macroeconomic environment typically falls into one of four, specific macroeconomic periods, or regimes: steady growth, recession, inflation shock and market stress. These macro regimes tend to take place with a similar frequency across all regions and periods, as per the chart below.

From these findings, we create a risk-balanced portfolio that can deliver long-term performance by allocating to risk premia according to their expected performance across different regimes. This long-term strategic allocation model – or ‘all-weather’ portfolio – forms the basis of our strategies.


  • A broader investment universe

After years of strong performance in equities and bond markets, the macroeconomy is changing and it is vital to avoid over-reliance on traditional assets. We believe that spreading risk across an expanded range of risk premia than those associated with traditional, long beta exposures can deliver effective diversification in all market conditions.

Our approach is different from most multi asset strategies because we diversify exposures across both traditional and alternative risk premia. Alternative risk premia have a low correlation to traditional assets and improve diversification. By drawing on both traditional and alternative risk premia we enhance our ability to deliver consistent returns in all macroeconomic conditions.



 

DYNAMIC RISK MANAGEMENT

Balancing returns across shifting regimes is paramount but adjusting the portfolio to reflect shorter-term changes can help achieve consistent returns. To do this, our team uses both systematic and discretionary approaches.

Systematic macroeconomic signals: Unigestion has developed three proprietary ‘Nowcaster’ indicators that assess macro conditions in real time:

  • Growth Nowcaster aims to measure the risk of being in a recessionary environment
  • Inflation Nowcaster gauges the risk of experiencing inflation surprises
  • Market Stress Nowcaster assesses the level of market tension

The output from these real-time macro risk-monitoring tools are then used to adapt the portfolio’s long-term strategic allocation to the prevailing economic conditions. For example, if we were in a high market stress environment, our systematic approach would tilt the portfolio towards more defensive risk premia.

 

Source: Unigestion For illustrative purposes only and does not represent actual trading data.
Source: Unigestion For illustrative purposes only and does not represent actual trading data.




Dynamic risk targeting: An important part of our risk management approach is the determination of how much risk the portfolio should take on. Dynamic risk targeting consists of increasing or reducing the exposure of the whole portfolio, while maintaining relative allocation sizes. As illustrated on the graph below, this allows us to tactically increase or reduce market exposure according to the current market context.

Dynamic risk targeting is an important step in managing drawdown reduction, especially during periods of market stress characterised by high correlation between risk premia. Under these conditions (following the Brexit vote, for example), most risk premia tend to correlate as investors sell all assets, regardless of their risk characteristics. Diversification is not sufficient to smooth these types of drawdowns and actively managing the risk budget allows us to further mitigate the downside.



Multi-dimensional risk measurement: Many risk-based multi asset strategies assess the risk of their portfolios using standard risk metrics, such as volatility and correlation. At Unigestion, we believe that risk should be defined in terms of potential loss of capital, rather than being proxied by a single abstract measure, such as volatility. We have therefore developed a proprietary Expected Shortfall model, which helps us gain a multi-dimensional view of portfolio risk.

Our model aims to encompass dimensions of risk that are ignored by volatility-based analysis, such as valuation, asymmetry, tail risk and liquidity. This framework allows us to identify assets that exhibit poor risk qualities, such as negative skewness, high kurtosis, poor liquidity or low carry, and reduce allocations to them accordingly. We believe this approach enables us to apply a more robust risk allocation across our portfolios and, therefore, to seek to achieve a consistent distribution of returns over the long term.




Discretionary views: However, a purely systematic approach is based on historical data and cannot perfectly assess forward-looking risks. We leverage the team’s wealth of fundamental investment expertise to complement this quantitative information with qualitative analysis that can extract relative value across and within asset classes. This combination of systematic and discretionary styles is a key characteristic of our innovative, dynamic risk management process.

 

Source: Unigestion. For illustrative purposes only.
Source: Unigestion. For illustrative purposes only.



OUR MULTI ASSET SOLUTIONS

Our multi asset solutions are designed to help investors achieve their investment goals against a backdrop of lower expected returns on traditional assets and increasing risk.



  • Core Multi Asset

A unique, macro risk-based investment strategy that aims to deliver cash + 5%, gross of fees, across all market conditions over rolling three-year periods, with around 6% volatility. It seeks to achieve its objective by capturing the upside during ‘bull’ markets while protecting capital during market downturns.


  • Total Return Bond

An active, macro risk-based fixed income strategy designed to outperform the Barclays Global Aggregate USD hedged index over a 3 to 5-year period, with 2% to 4% volatility. It aims to deliver consistent long-term total returns by allocating dynamically across traditional and alternative risk premia, as well through opportunistic trades.


  • Customised multi asset solutions

Our approach to building customised solutions begins with a detailed client profiling process to ascertain risk appetite, constraints, investment horizon and performance targets. We then use a flexible, modular approach using both internal and third-party strategies to build a long-term portfolio precisely tailored to our client’s requirements.













Geneva

UNIGESTION SA 8C Avenue de Champel PO Box 387 1211 Geneva 12 Switzerland +41 22 704 41 11 clients@unigestion.com


Zürich

UNIGESTION SA - Zürich Branch Sihlstrasse 20 8021 Zürich Switzerland + 41 44 220 16 00 clients@unigestion.com


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