Aquila launches Risk Parity Bond Strategy to counter uncertainty

Alternative investment manager Aquila Capital is addressing investor concerns at ongoing uncertainty in fixed income markets with the launch of a risk parity bond strategy similar to its outperforming multi-asset risk parity funds.

Stuart MacDonald, managing director at Hamburg-based Aquila Capital, said the strategy can provide an effective antidote to the current uncertainties faced by many institutional and other investors who need to maintain fixed income exposures in their portfolios.

Many market commentators see a ‘great rotation’ from bonds to equities, driven by economic recovery, rising interest rates and a pursuit of higher returns. This is seen as likely to end the 33-year bull market in bonds. But some investors need to maintain a certain level of fixed income holdings, so switching out of the asset class is not an option.

With Aquila’s Risk Parity Bond strategy, around 50% (on a risk weighted basis) of the portfolio is correlated to equities, so the strategy should perform with gains in this asset class. The remaining risk is allocated to core fixed income markets, so if they remain steady or rise, the strategy will again benefit.

“Risk Parity offers truly effective risk-equalised diversification across uncorrelated asset classes from which risk premia can be extracted,” noted MacDonald. “(This) means we should be able to offer sustainable long term performance, regardless of economic and market conditions.”

The strategy aims to provide a truly diversified and liquid counterbalance to investors’ existing exposures, with long term stable returns regardless of the twists and turns in the economic and fixed income cycles.

It applies the same proven Risk Parity allocation principles as Aquila Capital’s long established and successful multi-asset AC Risk Parity strategy (including the AC Risk Parity 7, AC Risk Parity 12 and AC Risk Parity 17 Funds), which has delivered strong risk-adjusted returns since 2004, including positive performance in 2008.

Aquila Capital’s Risk Parity Bond strategy will invest with equal risk weightings across four types of fixed income asset. Each is uncorrelated to the others. They are Government Bonds, Corporate Bonds, Carry Positions in Emerging Markets and Inflation-linked Bonds.

The correlations of each of these asset types to different phases of the economic and fixed income cycles are also highly varied. This means that as one asset type goes down, one or more of the others should rise. This helps to mitigate risks and stabilise returns across the portfolio on a sustainable basis.

Torsten von Bartenwerffer, director of Portfolio Management at Aquila Capital noted: “Capital is allocated on the basis of the risk which an asset contributes to the portfolio rather than its predicted returns. The strategy is not based on market timing, but instead focuses on the management of uncertainty through effective diversification.”

Aquila Capital is one of Europe’s leading independent alternative investment managers with over $5.3bn in assets under management. The company specialises in the management of market independent investment strategies that are driven by global macro trends and which provide above average, long term returns.


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