Asset Allocation

Observation of the financial markets over the past few years shows that periods of market gains, when the indices fared well, have been followed by declines or even crises that have hit investors hard.

In an environment that is now less certain, the need to comply with a fixed equity allocation may seem restrictive but it has become necessary, so that portfolio exposures to the various asset classes (equities, bonds, etc.) can be adjusted to changing market configurations. Flexible management, which can adjust one’s strategy to short-term market shifts, is one way to meet this objective.

“ACADEMIC STUDIES HAVE SHOWN THAT ASSET ALLOCATION HAS BEEN THE MAIN SOURCE OF RETURNS IN THE LAST 30 YEARS.”

Arnaud Faller, Chief Investment Officer at CPR AM

Flexible management delegates the management of your funds to specialists who adjust your portfolio’s allocation to market shifts between money-market, equity and bond assets.
CPR AM’s approach aims to achieve the best possible return for a given level of risk and investment horizon. Asset allocation is of hallmark importance in the construction of Multi-Asset portfolios.

Multi-Asset Team

Multi-Asset team in action

ASSET ALLOCATION: THE CORNERSTONE OF OUR MANAGEMENT STRATEGY

The main approach taken by CPR AM aims to achieve the best return for a given level of risk and investment horizon. Asset allocation is at the heart of the construction of diversified portfolios. It addresses three “key” issues:

1. Establishing the best possible allocation through an optimum combination of the various eligible assets

Rallying all of CPR AM’s capabilities to produce several market scenarios and their probabilities of coming to pass.
Determining an optimum allocation for each portfolio via our allocation model.

2. Placing risk control at the core of the strategy

Managing a pre-set risk budget under certain restrictions (expressed as volatility, tracking error, maximum loss, etc.) and reflecting extreme market risks.

3. Focusing on active management of exposures

Capitalising on the investment management team’s experience and implementing a responsive tactical allocation to tap into the most favourable trends and/or to hedge the risks.

THE STRONG POINTS OF OUR MULTI-ASSET MANAGEMENT STRATEGY

Asset allocation is based on the following considerations:

A probabilistic multi-scenario approach to broaden the field of possibilities and come as close as possible to market risk.
A propriety asset allocation model to construct an optimised portfolio based on each portfolio’s scenarios, risk budget, and constraints.
Constant adjustment of exposures to short-term market conditions through tactical allocations, in order to tap into opportunities and hedge against risks.

The main risks of this strategy are the risks of loss of capital, along with equity, interest-rate, credit and forex risk. Refer to the fund’s legal documentation for more details on its risk profile.

CONVERTIBLE BONDS, THE BEST OF BOTH WORLDS?

A convertible bond is a hybrid financial instrument with both a bond component and an equity component thanks to the conversion option. In short, it is a bond that includes a conversion right allowing its holder, under certain conditions, to exchange a company’s bonds for its shares.

In practice, if the share price rises the convertible bond price also tends to rise, tracking the share’s performance. However, if the share price falls, the convertible’s bond character comes to the fore. In short, a convertible bond holder participates increasingly in share price gains and will be protected if the share price falls.

With more than 20 years of experience in convertible bonds, CPR Asset Management is a long-standing player in this asset class. Management of the convertible bond portfolios is entrusted to an experienced team that is fully integrated into the Multi-Asset strategy department. The two specialist managers have asset allocation tools and research available to them, along with operating circuits and transversal ideas set up with CPR AM other managers (equities, credit), particularly to monitor issuers.

The manager’s strategy aims to optimise returns and limit risk using a model based on four performance drivers (interest rates, credit, equities, and volatility).