Aberdeen Standard Investments and BNP Paribas' Global Risk Mitigation Index delivers strong performance
Since it’s launch in July 2019 the Aberdeen Standard Investments (ASI) and BNP Paribas’s Global Risk Mitigation (GRM) Index has delivered a strong two-year performance. The GRMx1 +100% MSCI World has gained 60 per cent cumulative since launch.
The GRM index family provides institutional investors, such as pension funds and discretionary portfolio managers with an effective route to mitigate their equity risk and reduce portfolio volatility. Additionally, in a market where bonds offer a reduced prospect of a positive forward return and negative correlation to equities, investors with a long equity position can use Global Risk Mitigation as an alternative way to diversify their portfolios.
Since the launch in July 2019 and following investor demand, not only are standalone Global Risk Mitigation indices available, but also, investments combining Global Equities and Global Risk Mitigation.
The GRM 1x Index, the composition of which is advised by ASI, aims to deliver a downside beta to equities of -0.2 or lower and generate a reasonable level of additional convexity in large equity market falls. This convexity means the Index should deliver stronger positive returns as the equity market decline increases. In addition, the Index has been designed to limit carry costs in rising/flat equity markets thereby making it easier for investors to retain the exposure in more benign environments. This investment objective is achieved by ASI dynamically allocating across four discrete building blocks namely; First Risk, Tail Risk, Trend and Defensive factors. Each of the four discrete blocks includes a number of underlying sub-indices published by BNP Paribas.
Various investment vehicles are available for investors to access the index including a daily dealing Irish domiciled fund.
Stephen Coltman, Senior Investment Manager of Alternative Investment Strategies at Aberdeen Standard Investments, says: “The GRM strategy was designed to be an efficient risk management tool for portfolio managers combining the benefits of systematic implementation and execution with active portfolio oversight. Delivering the strategy through an index has allowed for multiple different access routes to the strategy and provided investors with the flexibility to incorporate GRM in to their portfolios according to their specific requirements.
Over the past two years we have managed the strategy through both a global pandemic driven bear market and a subsequent strong bull market in which developed market equity indices have reached new record highs. Throughout these different environments GRM has delivered consistent negative correlation to equities and added convexity to investor portfolios, with gains generated during market declines outweighing losses incurred during market rallies. At a time when reliable diversification is hard to find we continue to believe that GRM can offer an attractive alternative to investors looking to manage drawdown risk in their portfolios.”
Xavier Folleas, Global Head of QIS structuring at BNP Paribas, says: “We are delighted with the investment performance since launch in July 2019. The team at ASI have worked diligently to not only ensure the portfolio was well balanced to capture profits during the Q1 2020 equity sell off but also to retain much of the gains since then. Since live the GRMx3 beta neutral and GRMx1 + 100% Global Equities have both materially out performed a long only equity allocation (MSCI World) with lower volatility and lower drawdown helping deliver a more stable return.”