The popularity of alternative risk premia (ARP) is growing and strategies that focus on ARP are increasingly being incorporated into institutional portfolios. The attraction of this approach is that ARP can mimic strategies that have historically only been available through hedge fund vehicles, but with more favourable liquidity and cost characteristics. However, as investors familiarise themselves with this newer universe of investment strategies, the disparity of results that is being delivered by these solutions in practice is raising some questions. This paper aims to highlight some of these variations, provide an explanation for them and to also provide some suggestions for investors considering this exciting new investment approach.
In our view, there are three elements an investor should consider:
1-It is important to scrutinise a manager’s definition of individual risk premia; despite being broadly categorised under the same name, we have found that risk premia can have significantly different performances across investment solutions.
2-The methodology that managers use to allocate between risk premia should be closely scrutinised; our observations have shown that even portfolios managed using “equal risk contributions” can be defined in a number of ways, which can have implications on the end result.
3-The benefits of diversifying across several alternative risk premia managers should be considered, as the resulting low correlation could help investors obtain improved risk-adjusted performance without significantly increasing their portfolio’s beta to traditional equity markets.
Socially responsible investing (SRI) aims to generate returns for investors while taking the sustainability and ethical impact of the investment activity into consideration. At Unigestion, we believe that integrating ESG criteria into our decision making process is essential to better understand the risks of our investments and therefore has a positive impact on the risk-adjusted performance of our portfolios. This paper seeks to outline the ways ESG issues are incorporated into our equities investment process and also considers whether the inclusion of ESG filters, based on clients’ specific ethical criteria, impedes a portfolio’s ability to deliver an attractive risk/return profile, consistent with that of a traditionally managed strategy.
By Maria Musiela, Investment Specialist, Equities
The result of the 48th general election of Japan’s House of Representatives was unsurprising, especially given the disarray of the major opposition party. Shinzo Abe’s well received leadership on the North Korean crisis and improved sentiment, reflecting the resurgent economy, helped solidify the lead for Abe’s Liberal Democrat Party (LDP) and helped ease his re-election as prime minister. This outcome provides greater certainty in relation to monetary policy, with the reappointment of Kuroda as Bank of Japan governor seen as likely, as well as further momentum for Abenomics and the necessary reforms.
By Gaël combes, Fundamental Analyst, Equities and Maria Musiela, Investment Specialist, Equities
Unigestion’s private equity team have again joined forces with Professor Oliver Gottschalg, HEC Paris and PERACS, to continue their research on the optimal construction of private equity portfolios, this time focusing on global small-cap portfolios.
– The global growth picture remains strong, with the world economy growing at the firmest rate since its recovery in 2011
– Inflation pressures are gaining momentum in spite of tighter monetary policy from Central Banks
– Market stress is on the rise and could start to assert its influence over global markets once more