Recent market volatility has reinforced the role of alternative investments in providing investors with a diversification tool to improve the risk and reward characteristics of their portfolios, according to leading alternative investment provider, Man Group.
Sandy Rattray, CEO of Man AHL, who is in Australia this week to meet with institutional clients, said an allocation to alternatives has the potential to provide a true source of diversification for investment portfolios and help investors reduce their portfolio risk, especially during market turbulence.
“Diversification is an important factor that investors should consider when they build their portfolios, especially if concerned about increased volatility,” Mr Rattray said. “The recent market downturn has been a reminder to investors of a lesson that we learnt all too well during the global financial crisis; to protect investments during downturns, investors need to consider more than just a portfolio consisting of equities and bonds.
“Alternatives can often deliver low correlation with traditional assets, potentially providing diversification benefits and improved portfolio efficiency. And trend following strategies in particular have the capability to benefit from falling prices, which can help defend investment portfolios during market disruptions.”
Man AHL is a pioneer in the systematic trading of global markets with a 25 year track record. Man AHL aims to identify and exploit market trends and other inefficiencies using heavily researched systematic trading models, with the focus on delivering a range of absolute return, long-only and momentum-based quantitative products.
Mr Rattray said that since the global financial crisis, investors’ increased interest in alternative investments has encouraged the development of new models as well as applying models to new markets.
“The slow recovery since the global financial crisis in 2007 has heightened interest amongst investors for attractive ways of earning money in market downturns,” Mr Rattray said. “Man AHL continues to invest in research and technology to create new investment models to meet investors’ varied risk tolerance and investment goals.”
To this end, Man Group has partnered with Oxford University to set up the Oxford-Man Institute of Quantitative Finance with the aim to create a stimulating environment of research and innovation. The laboratory, headed by Man AHL’s Chief Scientist Dr Anthony Ledford, has made significant contributions to Man AHL’s commercial investment activities and Man Group’s researchers benefit from discussions with renowned academics that would be unavailable to them in a purely commercial environment.
Changing investor perceptions
Hersh Gandhi, Managing Director, Asia-Pacific at Man Group said that investors’, especially institutional investors’, perception toward quantitative investing has changed over recent years.
“When investors previously talked about quantitative investing, they often referred to it as ‘black box’ investing and didn’t really understand what it was or how it worked,” Mr Gandhi said. “However quantitative investing is actually very transparent. It is computer-based and takes much of the emotion out of investment decisions.”
“Beyond diversification benefits, investors are also realising the benefits of alternatives to capitalise on any market opportunity to improve performance potential and consistency,” Mr Gandhi concluded.
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