Fund Research

This white paper looks at the period of the increased volatility in the financial markets leading up to and on November 8th and provides valuable insights into internal workings of risk parity strategies during periods of heightened volatility.

Using Standard Life Global Absolute Return Fund (SLI GARS) weekly performance data, we show how sophisticated factor analysis can provide valuable insights into this fund’s complex global “go anywhere” investment strategy.

In the winter of 2015, an almost unheard of situation happened. A mutual fund, normally required to guarantee daily liquidity, blocked its clients from withdrawing money. The Third Ave Focused Credit Fund (TFCIX), citing losses and a lack of liquidity in the high yield bond market, put some of its assets into a trust to be sold over time.

Risk parity strategies hold the promise of smooth sailing through periods of market turbulence, offering consistent performance via risk diversification. However, during Brexit the losses they experienced were very high by historical standards as they came very close to exceeding, or exceeded, the 95% worst outcome as estimated by the historical VaR.

In the world bond fund category, a dramatic change has happened: last year’s worst-performing funds are this year’s best-performing ones.