Dit artikel wordt u aangeboden door UBS Asset Management.

How to protect your portfolio for rising market volatility?

Reduce correlations in your portfolio

Liquid alternatives are a unique source of excess return with broad application across a variety of investor portfolios. And because their low correlation with other asset classes, they can withstand a wide range of market environments.

Where can investors seek stable returns when markets are getting more volatile? How can portfolios be protected against fierce market corrections? Liquid alternatives built more efficient, robust portfolios with less dependence on market directionality.

Why Currency Allocation Return Strategy

UBS Currency Allocation Return Strategy (CARS) is a daily liquid, high conviction source of excess return with a history of low/negative realized correlation to most other asset classes and investment strategies. CARS applies a value-led, macro-fundamentals-based investment approach to opportunities within global currency markets.

It invests across both G10 and liquid emerging market currencies through forward and non-deliverable forward contracts (NDFs), targeting a return of cash +10% per annum over a full market cycle (5-7 years).

As such, it delivers meaningful returns, even in a low rate environment and irrespective of general market direction. CARS affords efficiency to investor portfolios, both in terms of fee budget and capital allocation, requiring a relatively small allocation in order to have a meaningful contribution on overall portfolio risk and return.

Philosophy

Despite their meaningful liquidity, currency markets are not perfectly efficient. Exchange rates tend to overshoot; tend to be subject to herd-following and irregular behavior; and tend to not automatically nor appropriately reflect new information. The real value of an exchange rate is mean-reverting over the long-term and that misvaluations can be exploited to generate excess returns.

The strategy follows a disciplined, repeatable process to identify and manage investment opportunities within currency markets, diversified by time horizon, macroeconomic factor and investment theme. The CARS portfolio is composed of UBS Asset Management’s highest conviction ideas and a strong focus on and understanding of how these ideas interact with each other under different scenarios.

Furthermore, CARS varies the ex-ante risk in line with the portfolio managers’ perception of the opportunity set, taking more risk when there are more opportunities and vice versa. Crucially, as exchange rates can move significantly in a short space of time it’s crucial to establish threshold price levels for change in exposure in advance of price moves. This helps ensure rational, non-emotional decision-making and a focus om compensated risk in line with our value investment policy.

Learn more about CARS and the event here.