This may sound like good news for investors. However, decorrelation doesn’t help you much if you don’t get any returns. For example, systematic futures (CTAs) have been the least correlated strategy with both equity and bond indices in recent history. But it has also been among the worst performing over the past two years, with high volatility.
According to Fessas, the two trends of lower volatility and concentration risk reinforcing each other, to the detriment of investors. “If there are only a few good funds that combine good returns with low volatility, they will get a lot of inflows, which will affect their performance. So we will end up with even fewer good funds.”
Take a risk
How can we address this problem which, it could be argued, is already a reality? “From a portfolio construction perspective, we don’t have a problem investing in higher-volatility managers. We will just size the position accordingly,” said Lyxor’s Joynathsing.
So investors should stop obsessively targeting volatility in their absolute return portfolios. Instead, they should allocate more money to higher-risk managers, and less to their low-vol cousins. This means they will probably have to stop allocating more money to absolute return funds, but as far as returns are concerned, less may indeed be more.
Here you can see a full overview of delegate voting results from the Expert Investor Alternative Ucits Congress.
And here is a selection of photos taken at the event.
