Macro Factors will remain the driver of risk & reward through 2014 across the Spectrum of investment.
Therefore, managing market shocks borne from monetary policy actions, sovereign unrest and other exogenous factors will continue to dominate the returns of both absolute and alternative managers.
Our current Market Risk AlertTM system has a high success rate (over 90%) of identifying these market shocks through a proprietary method involving three lenses. The most recent weekly review is attached through a link at the bottom of this post.
Methodology employs a Feedback loop among:
1. Market-based signals,
2. Fundamentals from Credit intermediaries &
3. Economic Factors
Our investment management process informs on the timing and scope of regime shifts and market shocks
as well as discerns relative value among the major asset classes.
Track Record of Market Risk Alert:
Historical Timeline of Risk Reversals and select Asset Allocation Shifts
1/12/2008 – Bank Loans remain at Risk to low 80s from low/mid 90s, Sell
3/14/2008 – Hedge Optimization, Swap hedge exposure into CDX Swaptions to lock in profit
7/12/2008 – Deleverage, Uncertainties remain, Quantitative and Credit Fundamentals support De-Risking.
4/07/2009 – Risk-On, Signals not as strong, but suggest bottom
4/22/2010 – Risk-Off, Correlation spike second only to March 2007 across equities, rates, currencies.
7/10/2010 – Risk-On, Correlations and volatilities have run their respective courses. Markets have bottomed
7/08/2011 – Risk-Off, Correlation/ Volatility basis at record levels. Greek default on table for first time
7/25/2011 – Re-Iterate Risk-Off, U.S. Downgrade likely, despite NOT being priced into any market
10/12/2012 – Alert, Risk Reversal
10/19/2012 – Risk Off, Reversal in Progress
11/16/2012 – Risk On, Markets to Re-Risk
1/02/2013 – Risk-On re-iterated despite fiscal cliff concerns
2/03/2013 – Risk-Off, Correlations spike, First False Signal as markets remained unchanged
2/12/2013 – Risk-On, rescinded Risk-Off call as move in correlations abated.
9/05/2013 – Market Risk Alert – Fed will likely NOT Taper
1/07/2014 – Risk-Off, Correlation / Volatility basis at max level, Market at all time peak
1/31/2014 – Selective Risk-On – Market correction likely run its course
March 7th Weekly Market Risk Alert Update (edited)