18 April 2013
Resurgence of instability: what are the best investment strategies to make the most of volatility?
The NGAM Workshop of 10 April on the theme "Resurgence of instability: what are the best investment strategies to make the most of volatility?" was attended by almost 200 participants and the Natixis AM experts who were there to provide some answers to the question of the day.
“The current market configuration has placed volatility and correlation issues centre stage, and for the long term”, explained Pascal Voisin, CEO of Natixis Asset Management, introducing the event. “It’s a new way of diversifying allocation and locking in new sources of performance."
Moderated by Christophe Point, Head of NGAM France Sales team, the Workshop was also hosted by Philippe Waechter, Chief economist, Olivier de Larouzière, Head of Interest rates, Emmanuel Bourdeix, co-CIO in charge of Seeyond investment division*, and Franck Nicolas, Head of Investment and client solutions.
Macro: is Europe a source of instability once again?
With Europe struggling to find new momentum, the global economy’s centre of gravity seems to be shifting to the Pacific. The euro zone is facing three challenges - reinventing a new growth model, solving the debt crisis and mapping out an institutional construction adapted to the world of today – that make it a source of instability for the global economy.
Low interest rates and rising volatility: how can one build an interest rate portfolio?
Recently, interest rates have converged downwards in very significant proportions, often resulting in spectacular performances. Given the credit risks specific to each country, sovereign debt management generates performance mainly from choices of regions and maturities.
Equity markets: how can one tap their volatility?
In equity markets that are structurally more uncertain, it has become at least as important to seek to tap equity volatility as to monitor trends. Minimum Variance-type strategies, which respond quickly to market vagaries, can be used to significantly reduce risk in an equity portfolio without forgoing long term performance. Another possibility is to take advantage of volatility’s negative correlation to equities by setting up active exposure on volatility indices.
Global allocation: where are the correlations?
Investors must overcome the backward-looking and overly simple bond/equity divide in favour of a risk factor allocation, in which the weight of large asset classes (bonds, equities and diversifying assets) derives from their respective contribution to the portfolio’s global risk. This approach requires analysing the cyclicality of each sub-asset class to strategic themes (monetary policy/inflation, solvency, global trade, etc.) and their sensitivity to specific technical situations.