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The Old Rules No Longer Apply

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Stockholm (HedgeNordic) – Splitting portfolios between equities and bonds has not offered the diversification benefits many investors expected and hoped for during the recent market turmoil from the coronavirus pandemic. “Traditional multi-asset approaches, to a certain degree, are being pushed towards their limits,” Asbjørn Trolle Hansen (pictured), who is heading Nordea’s multi-asset investment team, tells Investment Week.

“The performance of multi-asset funds has varied during the coronavirus turbulence, depending on particular risk levels,” says Hansen. “Multi-asset funds at the lower end of the risk spectrum have also had troubles throughout the turbulent market environment in February and March,” he points out. “A contributing factor here is likely the low-yield environment, where bond returns have not been able to provide the usual diversification benefits many investors have been used to.”

As an example, German bunds, seen as a safe haven for investors, performed poorly during the coronavirus-induced market turbulence. “Aside from German bunds, which have been providing virtually no protection, US treasuries have only been able to moderately dampen the downturns of some multi-asset funds,” adds Hansen. “In a pronounced low-yield market environment, paired with heightened volatility, the traditional diversification approach is no longer working well.”

Many traditional multi-asset funds also faced significant liquidity-driven redemptions. “Investors looked to significantly deleverage portfolios and everything liquid was sold and consequently suffered, exacerbating the meagre fund performances,” Hansen tells Lauren Mason of Investment Week. “Given growing uncertainties, paired with all-time high volatility and unchartered low yields, we believe traditional diversification is no longer able to protect investors to the extent they have been used to.”

Nordea’s multi-asset team, which manages its Alpha fund family comprised of Alpha 7 MA Fund, Alpha 10 MA Fund and Alpha 15 MA Fund, leverages on 15 years of research to harvest traditional and alternative premia through several types of uncorrelated strategies. “Since the establishment of our team in 2004, our investment process has not only adopted the typical method of asset class investing but, but also alternative diversifiers,” Hansen tells Investment Week. The multi-asset team at Nordea considers a broad and diversified set of different risk premia across strategy types and asset classes. “An increasing number of risk premia coming from the traditional investment space will be insufficient to master the increasingly complex market environment, so investors will need to focus more on alternative risk premia.”

“The historic stress test-like environment investors went through in March proved sound liquid alternative solutions were able to truly diversify,” says Hansen. Nordea’s Alpha 10 MA Fund, a multi-asset, multi-strategy fund with €2.9 billion in assets under management, gained 3.3 percent in March, 4.2 percent in April and is up 6.5 percent year-to-date through the end of May. “Our recipe is not so secret but rather one of diversification,” Hansen recently said during one of Nordea’s weekly webinars.

“The overall goal is to keep a high level of diversification, while still being able to profit from market trends and inefficiencies,” Hansen tells Investment Week. “Diversification is not simply about piling into numerous asset classes, but rather identifying and balancing a select number of robustly uncorrelated return drivers able to complement each other and add value through most market environments.”


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Eugeniu Guzun
Eugeniu Guzun
Eugeniu Guzun serves as a data analyst responsible for maintaining and gatekeeping the Nordic Hedge Index, and as a journalist covering the Nordic hedge fund industry for HedgeNordic. Eugeniu completed his Master’s degree at the Stockholm School of Economics in 2018. Write to Eugeniu Guzun at eugene@hedgenordic.com


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