Willem Klijnstra, strategist at LGIM, outlines the group's risk approach as applied to their Multi-Asset Target Return Fund
MATR is a target return fund with an unconstrained investment approach. We target a low equity beta with a cash plus 5% return target. Alongside this objective, there are also three risk controls which make MATR quite unique in its kind. The first one is that we manage volatility in a range between 6% and 10%, while the second is to keep the equity beta below 0.4, both over a three-year rolling period. This helps us avoid being overly reliant on equity markets.
Then the third risk control is to limit our downside participation to less than 40% in any sharp and significant equity drawdown. 2016 and 2017 were good years for the strategy. 2015 was a more challenging year because we saw a sharp reversal in market trends straight after the fund's launch.
That caught out some of the momentum strategies in the alternative component. We learnt from this episode and we've made small adjustments to the strategy. But we should not only look at returns but also at the three risk controls. Volatility has been within the volatility band but it has been at the low end as market volatility has been very low as well. The equity beta has averaged around 0.25 but ranging between 0 and 0.4. Lastly, we've only seen three equity drawdowns since the fund's launch but in all cases MATR participated less than 40% in those drawdowns.
Click here to learn about LGIM's MATR Fund, the importance of specialist skills within the portfolio team, and how the managers seek to overcome innate investment biases.