Market advantage

Philosophy

Market Advantage is a global multi-asset risk parity strategy designed to help achieve better diversification than traditional 60/40 portfolios by allocating capital based on risk rather than by asset class.

This is done by balancing risk across six fundamental macroeconomic factors - economic, real rates, inflation, credit, emerging markets and liquidity – that explain the majority of asset class variability and are unconditionally rewarded over the long term.

By allocating across this diverse set of factors and incorporating metrics to help the team manage market extremes we strive to:

• Maximize return per unit of risk
• Provide downside mitigation during periods of market stress
• Perform well across various economic regimes

Investment Process

The investment process pursues diversification by drawing upon a deep understanding of the various fundamental risk factors that drive portfolio return.

The investment process can be broken down into the following steps:

• Identification of key macroeconomic factors that explain the majority of asset class returns
• Capture each individual driver of return in an investible portfolio
• Creation of a diversified, balanced portfolio that maps the investable portfolios to target factor allocations
• Management of market extremes, such as reducing market exposure during periods of risk aversion for downside mitigation, or by adjusting portfolio holdings to reflect significant deviations (rich or cheap) from long-term valuation.

The goal is to create a highly diversified, liquid portfolio that can invest in 12 asset classes and across 50 countries.

Applications and Potential Benefits

Market Advantage may appeal to investors who have the following objectives:

• Grow assets while managing downside risk.
• Achieve a favorable risk/return profile with less reliance on equities and economic growth, which tend to dominate traditional balanced (ex. 60/40) allocations.
• Invest in liquid financial instruments to in efforts to gain broad exposure to a diversified set of global asset classes.