Since it’s launch in July 2019 the Aberdeen Standard Investments (ASI) and BNP Paribas’s Global Risk Mitigation (GRM) Index has delivered a strong two-year performance. The GRMx1 +100% MSCI World has gained 60% cumulative since launch (see table below).
The GRM index family provides institutional investors, such as pension funds and discretionary portfolio managers with an effective route to mitigate their equity risk and reduce portfolio volatility. Additionally, in a market where bonds offer a reduced prospect of a positive forward return and negative correlation to equities, investors with a long equity position can use Global Risk Mitigation as an alternative way to diversify their portfolios.
Since the launch in July 2019 and following investor demand, not only are standalone Global Risk Mitigation indices available, but also, investments combining Global Equities and Global Risk Mitigation. Summary of performance and expected betas below.
|Expected beta to MSCI World||Launch cumulative to 31st July ’21||YTD||Q1 2020|
|GRMx3 + 60% MSCI World||0%||61.84%||4.04%||37.92%|
|GRMx1 + 100% MSCI World||80%||60.03%||13.41%||-3.39%|
The GRM 1x Index, the composition of which is advised by ASI, aims to deliver a downside beta to equities of -0.2 or lower and generate a reasonable level of additional convexity in large equity market falls. This convexity means the Index should deliver stronger positive returns as the equity market decline increases. In addition, the Index has been designed to limit carry costs in rising/flat equity markets thereby making it easier for investors to retain the exposure in more benign environments. This investment objective is achieved by ASI dynamically allocating across four discrete building blocks namely; First Risk, Tail Risk, Trend and Defensive factors. Each of the four discrete blocks includes a number of underlying sub-indices published by BNP Paribas.
Various investment vehicles are available for investors to access the index including a daily dealing Irish domiciled fund.
Stephen Coltman, Senior Investment Manager of Alternative Investment Strategies at Aberdeen Standard Investments, comments: “The GRM strategy was designed to be an efficient risk management tool for portfolio managers combining the benefits of systematic implementation and execution with active portfolio oversight. Delivering the strategy through an index has allowed for multiple different access routes to the strategy and provided investors with the flexibility to incorporate GRM in to their portfolios according to their specific requirements.
Over the past two years we have managed the strategy through both a global pandemic driven bear market and a subsequent strong bull market in which developed market equity indices have reached new record highs. Throughout these different environments GRM has delivered consistent negative correlation to equities and added convexity to investor portfolios, with gains generated during market declines outweighing losses incurred during market rallies. At a time when reliable diversification is hard to find we continue to believe that GRM can offer an attractive alternative to investors looking to manage drawdown risk in their portfolios.”
Xavier Folleas, Global Head of QIS structuring at BNP Paribas commented: “We are delighted with the investment performance since launch in July 2019. The team at ASI have worked diligently to not only ensure the portfolio was well balanced to capture profits during the Q1 2020 equity sell off but also to retain much of the gains since then. Since live the GRMx3 beta neutral and GRMx1 + 100% Global Equities have both materially out performed a long only equity allocation (MSCI World) with lower volatility and lower drawdown helping deliver a more stable return.”
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About Aberdeen Standard Investments
- Aberdeen Standard Investments is a global asset manager dedicated to creating long-term value for our clients. With over 1,000 investment professionals, we manage £456.6 billion* of assets worldwide. We have clients in c.80 countries supported by over 40 offices globally. This ensures we are close to our clients and the markets in which we invest. (*as of 30 June 2021)
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About BNP Paribas
BNP Paribas is a leading bank in Europe with an international reach. It operates in 68 countries and has more than 193,000 employees, including nearly 148,000 in Europe. The Group has key positions in its three main activities: Domestic Markets and International Financial Services (whose retail-banking networks and financial services are covered by Retail Banking & Services) and Corporate & Institutional Banking, which serves two client franchises: corporate clients and institutional investors.
The Group helps all its clients (individuals, community associations, entrepreneurs, SMEs, corporates and institutional clients) to realise their projects through solutions spanning financing, investment, savings and protection insurance. In Europe, the Group has four domestic markets (Belgium, France, Italy and Luxembourg) and BNP Paribas Personal Finance is the European leader in consumer lending.
BNP Paribas is rolling out its integrated retail-banking model in Mediterranean countries, in Turkey, in Eastern Europe and a large network in the western part of the United States. In its Corporate & Institutional Banking and International Financial Services activities, BNP Paribas also enjoys top positions in Europe, a strong presence in the Americas as well as a solid and fast-growing business in Asia-Pacific.
The methodology of and rules governing the index (the “Index Methodology” and the “Index”) are proprietary and may not be disclosed or disseminated without the permission of the sponsor of the Index (the “Index Sponsor”). None of the Index Sponsor, the index calculation agent (where such party is not also the Index Sponsor, the “Index Calculation Agent”) nor, where applicable, the index Investment Advisor (the “Index Investment Advisor”) guarantee that there will be no errors or omissions in computing or disseminating the Index.
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