Unigestion has €22bn of assets under management, of which over €1.2bn are in multi-asset strategies, including the firm’s flagship Cross Asset Navigator fund that seeks to deliver gross returns of cash +5% with a 6-8% volatility.
It is the Swiss boutique’s belief that it remains impossible to replicate equity-like returns with a simple traditional balanced portfolio. Speaking at a media briefing in London recently, Jérôme Teiletche (pictured), head of Cross Asset Solutions at Unigestion, presented the firm’s approach to grasp smoother multi asset returns, be less dependent of a single driver’s growth and obtain a greater multi-asset balance across market regimes.
Teiletche emphasised on diversification across macro regimes and through alternative risk premia. The Swiss boutique cross asset team’s methodology encompasses carry maximisation (buying best-yielding bonds and shorting worst-yielding ones) and dynamic risk management.
“If you have a good view of where you stand in terms of economic regime, you will always do a good job. We captured the rise of the market stress in January and the inflation that has been rising for months, that has helped us to better manage the portfolio downside in February,” said Teiletche.
“We are not flipping a coin. We reduce risk ahead of political events and see what happens after these events occur. Everyday’s focus for the team is to assess what are the risks ahead. We do not want to invest in assets carrying a risky proposal and sometimes just reducing risk is the best way to make good investments,” he added.
Time for a change
Unigestion’s cross asset chief said that the team currently sees less issue on the political risk but that the challenge dwells more in the way central banks will drive monetary policy normalisation. “The biggest risk for us since over a year has been the very low inflation expectations and the need for normalisation. We consider that last year’s Goldilocks environment cannot last forever. Inflation needs to pick up. The challenge is less with the Fed than other central banks which are late in the normalisation process.”
Commenting on the last meeting of the European Central Bank that took place on 8 March 2018, Olivier Marciot, investment manager on the Navigator fund, argued: “Despite the ECB leaving interest rates unchanged, the rhetoric and details of today’s announcement clearly signal the end of monetary policy easing across Europe and paves the way for an era of global normalisation. After the initial reaction of the euro strengthening and European yields surging due to the somewhat hawkish headline decision to keep rates as they are, the market is now digesting the more balanced tone of Draghi’s press conference.
“The age of accommodative monetary policies will soon be behind us and so too will be the ultra-low volatility world we have lived in over the last few years. The pace at which the major central banks normalise their policies will be key to asset returns this year and beyond.”
Long equity, short credit
Jeremy Gatto, portfolio manager on the Navigator fund, commented on the current allocation of the fund which returned 10.6% net returns over 2017.
The systematic strategic book of Navigator was down 1.5% in performance in February 2018 after the correlation shock between equities and bonds seen at the start of last month.
The dynamic book, aiming to adapt the strategic portfolio to the economic environment, brought a positive +1.4% performance to the multi-asset fund. “Our dynamic risk management approach compensates the drawdown seen in February. We were slightly negative, close to flat,” said Gatto.
The opportunistic book, gathering short-term tactical positions and considered as an extra layer of decorrelation by Unigestion’s portfolio manager, faced a 12 bps drop.
Three macro-themes are considered by Unigestion’s cross asset team : steady growth , inflation expectations adjusting, and the uncertain monetary path leading to higher volatility.
“World’s growth is excellent and can be observed in both developed and emerging markets. We have chosen to go long global equity to take advantage of that supportive macro context.
“Then, we have been foreseeing inflation picking up for a while. On a short-term stance, we do hold government bonds. The reason is that the market sentiment towards inflation has shifted from low to high expectations and the market pricing seems more in line now with the inflation risk. Also the level of carry offered by govies led to us to be tactically long on that segment.
“We are convinced that the higher volatility regime is here to stay. Central banks will tighten meaning more volatility and lower liquidity ahead. This is why we short credit,” explained Unigestion’s Gatto.