Rethinking sustainable investment strategies for choppy markets

Presented by

Aymeric Kalife, CEO, iDigital Partners & Adjunct Professor at Paris Dauphine University

About this talk

In the face of multiyear highs in crude oil, covid delta worries, vulnerabilities of the Chinese financial system, strong signals of expected monetary tightening, the extent to which stocks have slumped then bounced back within a few days illustrate how equity markets have become choppy. While the active trading in equity markets in the past six months has been rather tentative and lacking in strong conviction, as illustrated by frequent small gains/losses by most players. Thus expect the current state of to continue for a few more months at least. Actually the rise in valuations over the past few years are more due to a declining interest rate cycle rather than greater growth rates: only the cost of equity has decreased, causing the multiple to rise, while the ROE expectations have remained constant. Still, although markets are not as pricey as they appear, the risks have grown. Within such a context, neither active (sector rotation, options carry) nor passive asset management styles (due to aggressive equity de-allocation vs. slow re-equitisation) have consistently mitigated choppy market risks. In contrast, some sound mix between macro & corporate fundamentals and market technical indicators provide more sustainable returns by: i) strengthening portfolio returns resilience through Price Earnings Growth indicators screening, and high quality ESG VaR-based asset allocation, ii) capturing the velocity of changes through rule-based cheap option strategies with low tacking-errors, and Gap Risk options. With respect to the value propositions above, digital technologies are helpful for (i) securely merging huge quantities of data across heterogeneous sources in a secure way (data virtualisation), (ii) devising robust portfolio rebalancing strategies (automatized multi-steps back testing and stress tests); (iii) selecting sustainable investment and hedging assets including liquidity issues (non-linear market impact AI modelling).

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