Managers in the U.S. and Europe are continuing to reduce both their net and gross exposures, now converging near their long-term lows. They are selectively selling or shorting stocks that are the most exposed to tighter restrictions, preferring value stocks instead (to position on firming real yields).
Protection and fixed income strategies have had to adapt in recent years to the extraordinary economic environment and investors’ reluctance to miss out on returns, but that doesn’t mean the foremost experts in portfolio construction and blending strategies aren’t worried about how some portfolios are positioned.
We broadly think about the sector as a collection of three sub-sectors: quantitative/systematic, alternative, and traditional. At Latitude Investment Management, we sit firmly in the last category.
Many funds deploy quantitative or systematic strategies, often using a long-short equity or relative value approach to time markets and generate returns for investors.
The benefit is a lower correlation to major asset classes, although the potential for miscalculating risk can lead to sharp drawdowns.
Moreover, these strategies involve frequent trading and portfolio turnover, adding cost and increasing the likelihood that past performance will not be replicable.
These strategies often also involve leverage and options, both of which cost investors through time, and these costs are hidden from the ongoing charge figures used to compare fund charges.