Brett Jollie

abrdn is making its well established Global Risk Mitigation (GRM) Strategy available to Australian professional and advised investors from yesterday. The strategy aims to help investors mitigate equity risk, reduce portfolio volatility and deliver stronger long-term compounded returns as they plan for their financial future and retirement.

Incepted in 2019, the GRM Strategy is designed to provide investors with an efficient hedge to reduce exposure to large developed market equity drawdowns. This is achieved by actively managing around 30 systematic hedging strategies at all times, brought together within the one solution. 

It is a defensive strategy that targets a strong negative correlation to equities and a beta to the MSCI World Index of -0.6 or lower.

It is also designed to offer greater protection as the equity market drawdown increases (known as convexity), meaning the greater the fall in in the equity market the stronger the potential return generated by the strategy. In March 2020 when the MSCI World Index fell 13.23% the GRM Strategy returned +34.62%^[1].

The GRM Strategy is managed by abrdn’s 50-strong global alternative investment strategies team. The team has over 20 years’ track record in creating and managing outcome-oriented alternative investment portfolios to meet clients’ needs, using a disciplined research-driven investment process.

Stephen Coltman, Lead Portfolio Manager of Global Risk Mitigation Strategy at abrdn said the GRM Strategy has been developed to address the single biggest problem investors face today: finding alternatives to fixed income in order to manage drawdown risk in a portfolio.

“Returns have been plentiful over the past decade as policymakers have kept interest rates low while at the same time injecting liquidity into financial markets. But economic and geopolitical uncertainties, low bond yields and variable cross correlations among traditional assets – particularly in distressed markets – are now clouding the outlook.

“That leaves investors with a tricky dilemma: how to meet return objectives without excessively increasing risk? In a yield-compressed world like today, equities have more room for upside and investors are willing to pay a premium for that. But equities can be a volatile asset class,” Stephen said.

“Traditionally, global bonds would have dampened risks, while still generating returns in a portfolio. That feature seems less reliable today. We have therefore designed the GRM Strategy with a clear objective: to protect growth portfolios at a time when many historically defensive assets have become increasingly correlated to equities.

“GRM brings together a variety of hedging strategies into one managed solution that allows clients to maintain or increase allocations to higher expected return investments while still managing their overall drawdown risk. The strategy brings together the benefits of systematic implementation and execution with active oversight to deliver an efficient and cost effective protective strategy,” he added.

Brett Jollie, Managing Director at abrdn Australia, said: “The GRM Strategy is a great example of the solutions we can provide to investors to help them reach their goals. Financial planners in particular will find this strategy a powerful tool and a valuable addition to their investment proposition to clients.

“Financial planners benefit from having strategies available to them that can help manage downside volatility. Such strategies can reduce drawdowns, provide access to market liquidity during market dislocations, and improve overall compound rates of return.

“GRM is designed to protect an investor’s portfolio throughout their career and into retirement, working to safeguard their financial future and smoothing the investment journey.  It should be regarded as an adviser’s financial planning investment partner, ensuring the foundational strength of their investment strategy.

“One additional consequence if you allocate to GRM is that the expected volatility of the portfolio will fall. If you don’t want risk to be lower, you can allocate more to equities and less to low returning assets such as government bonds,” Brett said.

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[1] Source: July 2020, abrdn, BNP Paribas, GRM Index ticker ENHA GRM3, gross of fees. For illustrative purposes only, past performance is not a guide to future results.

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