Rethinking Multi-asset portfolio strategies to capture velocity changes

The asset management industry has been facing four main challenges since the 2008 financial crisis, regarding not only alpha generation but also risk mitigation: persistent low interest rates, drastic change in volatility regimes patterns, deflationary environment and decreasing alpha, increased competition across asset managers. Neither active (e.g. sector rotation as diversification is dying, or options due to high cost of carry) nor passive asset management styles (due to under/over-risking patterns, too aggressive equity de-allocation vs. too slow re-equitisation, or contributions to market crash feedback loops) have significantly and consistently captured velocity changes over the past decade. Here we present some sound mix between fundamentals and systematic market technical indicators in order to capture velocity changes through: embedding economic and supply & demand fundamentals within systematic algorithmic passive asset management, combining “volatility control” with high quality stocks, or rule-based strategies based on trade-off between sustainable low tacking-errors vs. low costs (e.g. using VIX futures or tail risk puts). With respect to the three value propositions above, digital technologies are helpful for (i) securely merging huge quantities of data across different sources in a secure way (using data virtualisation), (ii) devising suitable portfolio rebalancing strategy (using multi-steps automatized back testing and stress tests across a wide range of patterns and stress tests); (iii) selecting sustainable investment and hedging assets, and managing semi-static hedging and liquidity issues (using big data, artificial intelligence, non-linear market impact modelling and “optimal control”).