Finance Monthly Global Awards 2016 Edition

63 FINANCE MONTHLY Finance Monthly Global Awards 2016 UNITED KINGDOM AIM MULTI-ASSET FUND We do, of course, continue to research a wide range of other strategies including various carry trades in each of the FX, commodity and fixed income markets. Our analysts keep abreast of all the latest academic research and bring these ideas to the investment process. How well were you positioned for the EU Referendum? Our view going into the referendum was that a result in favour of Brexit was at least a strong possibility.  As such we could find no rationale for taking on the level of risk implied in attempts to profit from the widely expected Remain vote. The fund was heavily in cash, with its net long exposure predominantly allocated to sovereign debt. Positioning in equities was market-neutral apart from a modest investment in German and French REITs. As a key point we also chose to leave our EUR and USD exposures unhedged, seeing little upside to the value of the pound in the event of a Remain vote compared with its expected downward swing should Leave come out on top. The major drivers of our performance following the result were 10 Year Treasuries and Gilts nearer the front of the curve and our foreign currency exposures, while there was little in the way of losses elsewhere, even in local currency terms, to offset these. Our REITs saw practically no decline in price by the end of the week, while even our positions in European dividends gained in GBP terms from the devaluation of the pound Can you describe how you view risk and what views you have of the current environment? Diversification of risk through asset allocation is becoming increasingly difficult in markets driven by central bank policy. Credit Suisse’s Cross- Market Contagion Indicator, which provides a measure of correlations among traditional asset classes, reached its highest levels of 75% this year, giving an idea of the degree to which these are moving in the same direction. Although it has since retreated from these extremes, it remains higher than it was during the last financial crisis. This confirms that, in the search for yield and return in an environment of years of zero interest rates and quantitative easing, markets have become more and more disconnected from fundamentals, with monetary policy seeming to dictate their next moves and historically accepted relationships like the negative correlation between stocks and bonds breaking down. Indeed, those assets most sensitive to interest rate changes, namely treasury and investment grade bonds, have also shown the largest influence on these cross-correlations in 2016. In short, assets are mostly moving in the same direction. The worry in all of this lies not only in the potential for concurrent selloffs across markets should central banks begin to tighten, but also in the instability of these inter-market relationships, whose sudden and large fluctuations are making it difficult to control risk in multi-asset portfolios, as diversification and hedging depend upon their consistency over time. This problem of forecasting risk is also an issue for systematic strategies, and with leverage and consequent exposure in risk parity, volatility targeting, and CTAs now approaching all-time highs due to low levels of volatility, markets could be sent tumbling, according to JP Morgan’s Marko Kolanovic,  if given a small push in the wrong direction. With a controversial U.S. election fast approaching and all eyes on the Federal Reserve, the proverbial straw that breaks the camel’s back could be just around the corner. What does a typical day in the office look like for you? What are some of the day-to-day challenges of working for AIM? I usually wake up at 5am. I read the news and take my dogs for a run. I drive my boys to school and come to the office at 8am. We have a team meeting where we discuss market events and review portfolio positions. I often have client meetings and present at various academic and industry related conferences. We review the quantitative models and regularly evaluate whether our views backed by the quantitative models perform well in the current market environment. Further to the investment and risk management side of the agenda, I continue to seek out distribution channels and develop our sales strategy. Unless I need to collect my children from school, I typically leave the office by 6pm. What motivates you most about your role and the sector that you operate in? Our sector is extremely competitive. It is challenging to identify strategies that will deliver positive risk adjusted returns. Our opportunity set is wide as we run global macro strategies. Investment across both traditional and alternative asset classes is an essential component of any diversified portfolio. Investment views are constantly being verified by the quantitative models. We start with analysis of the market environment and adjust our portfolio to produce largest return given specific level of risk. Interaction of quantitative and systematic investment strategies with the common sense approach of discretionary management is defining the way we manage money. Purely discretionary managers are struggling to find sources of return in a difficult market defined by the large swings in correlations between different asset classes. Also, model driven strategies that rely solely on trends have been suffering this year. Our focus is to ensure that whatever solutions we provide to clients, that these solutions achieve a practical, successful and sustainable financial result for the future “ “