In 2011, it was decided to launch the risk-based solution outside of the Lombard Odier pension fund, and so in 2013 it was packaged into investable funds for private clients. The Vantage range pairs defined returns with drawdowns.
“For example, one model offers cash plus 3% with a maximum drawdown of 5%, or for a potential return of 6%, the loss could be 15%,” explains Monier.
“For clients with more wealth we can start to have tailored solutions that are more adapted to their personal circumstances.”
The aforementioned risk factors are rebalanced on a regular basis, while clients are also offered access to a more traditional capital allocation approach – built around macroeconomic scenarios and long-term expected returns of the various asset classes – if that is more suitable.
“Which you invest in depends on the type of client and where you are in the market cycle,” Monier explains.
“If you have a conservative client, and bearing in mind the bull market of the past eight years, it is probably more logical to invest in the risk-based strategy. If it was a March 2009 type scenario when the market had bottomed, and you are a client based in an emerging market who loves risk, you are better off investing into a traditional asset allocation. But it’s not black or white – it’s different shades of grey and you can have a proportion in each strategy.”
So, what is Monier and his team’s current view on the world? The view historically is that the macroeconomic environment has been improving and the only major concern is geopolitical and election risk, which as we all know has been a big theme this year in Europe.
Still, the team is positioned with an underweight to developed market equities, and an overweight in emerging market equities.
Monier explains: “We have had an eight-year rally in equities, that has accelerated recently. Markets work in trends and towards the end of a rally there is often a big acceleration before a correction. I can’t say where we are in the cycle, but we are certainly getting closer to that point.
“We are worried for the UK in particular. It has structural weaknesses in its current account deficit and budget deficit and it needs to finance nearly 5% of its GDP every year by external source of funding.
