Accessing our "all-weather" strategies
We consult to the managers of the VT Avastra Global Alternatives Fund, which incorporates an "all-weather" investment approach.
For more information on this fund, please visit their website.
www.avastrafunds.co.uk/
For more information on this fund, please visit their website.
www.avastrafunds.co.uk/
Delivering an All-Weather investment strategy
We see two approaches for delivering an "All-Weather" investment strategy for UK investors: the static approach and the dynamic approach.
THE STATIC APPROACH
Elston Equal Weight Portfolio Strategy
This weights 4 key assets by an equal weight.
Also known as Harry Browne's "Permanent Portfolio" or a "bullet proof" portfolio for "fail-safe investing."
For more on the static approach to All-Weather investing, watch the video visit Elston Permanent Portfolio UK
On Bloomberg, search the Elston Equal Weight Portfolio Index [Ticker: ESBEWP Index]
THE STATIC APPROACH
Elston Equal Weight Portfolio Strategy
This weights 4 key assets by an equal weight.
Also known as Harry Browne's "Permanent Portfolio" or a "bullet proof" portfolio for "fail-safe investing."
For more on the static approach to All-Weather investing, watch the video visit Elston Permanent Portfolio UK
On Bloomberg, search the Elston Equal Weight Portfolio Index [Ticker: ESBEWP Index]
THE DYNAMIC APPROACH
Elston Dynamic Risk Parity Strategy
This weights 4 key asset classes by an Equal Risk Contribution.
Risk Parity portfolio concept was pioneered by Ray Dalio of Bridgewater Associates.
For more on the dynamic approach to All-Weather investing, watch the video below and read on
On Bloomberg, search the Elston Dynamic Risk Parity Index [Ticker: ESBDRP Index]
Elston Dynamic Risk Parity Strategy
This weights 4 key asset classes by an Equal Risk Contribution.
Risk Parity portfolio concept was pioneered by Ray Dalio of Bridgewater Associates.
For more on the dynamic approach to All-Weather investing, watch the video below and read on
On Bloomberg, search the Elston Dynamic Risk Parity Index [Ticker: ESBDRP Index]
Why this strategy
The concept of the all-weather portfolio is to deliver steady returns in all different types of market regime, whilst constraining risk.
Our all weather portfolio strategy aims to:
1. Deliver a steady return premium
What: The strategy aims to deliver a positive return premium to bonds in all market conditions.
How: The strategy dynamically allocates across asset classes, depending on changing risk, return and correlation characteristics.
2. Preserve capital in all conditions
What: The strategy aims (but cannot guarantee) not to lose capital value in any 12 month rolling period and avoid large losses.
How: The strategy has a risk level similar to bonds, and constrains risk to minimise drawdowns for downside cushioning.
3. Provide true "risk-based" diversification:
What: The strategy acts as a risk-based diversifier by providing reduced correlation to an equity/bond portfolios.
How: Changing risk characteristics determine asset-weights, rather than vice versa. This gives more effective diversification that is risk-based, not asset-based.
What's the science behind this strategy?
The design principle behind this strategy is called "Equal Risk Contribution", also known as "Risk Parity". It optimises the weight of each asset class, so that each asset class contributes an equal amount of risk to the overall strategy. This means that instead of asset weights determining portfolio risk contributions, portfolio risk contributions determine asset weights.
What's under the bonnet?
The strategy is constructed six liquid low-cost physical ETFs representing major asset classes: UK equities, global equities, UK bonds, UK property, gold and ultrashort bonds (cash equivalents).
Is that all?
Yes. That's all. No leverage, no shorting, no hedging, no pair trades. The elegance of this approach is to use a dynamically changing weighting scheme (the weights changes each month) to derive the return premium.
Is there a history?
You can view the history of this strategy's benchmark which uses a systematic rules-based approach to Risk Parity for GBP investors.
Benchmark: Elston Dynamic Risk Parity Index launch date 2018, start date: 2011, strategy simulation start date 1997. The index was discontinued, but the strategy is available on request.
Strategy Objectives
The Elston Dynamic Risk Parity strategy is a multi-asset risk-based strategy. The index strategy is designed to allocate dynamically to a diverse range of asset classes such that each asset class exposure contributes equal risk to the overall strategy. The strategy also limits the overall level of volatility.
The index provides a systematic rules-based approach for providing risk-based diversification with differentiated returns and constrained risk.
The concept of the all-weather portfolio is to deliver steady returns in all different types of market regime, whilst constraining risk.
Our all weather portfolio strategy aims to:
1. Deliver a steady return premium
What: The strategy aims to deliver a positive return premium to bonds in all market conditions.
How: The strategy dynamically allocates across asset classes, depending on changing risk, return and correlation characteristics.
2. Preserve capital in all conditions
What: The strategy aims (but cannot guarantee) not to lose capital value in any 12 month rolling period and avoid large losses.
How: The strategy has a risk level similar to bonds, and constrains risk to minimise drawdowns for downside cushioning.
3. Provide true "risk-based" diversification:
What: The strategy acts as a risk-based diversifier by providing reduced correlation to an equity/bond portfolios.
How: Changing risk characteristics determine asset-weights, rather than vice versa. This gives more effective diversification that is risk-based, not asset-based.
What's the science behind this strategy?
The design principle behind this strategy is called "Equal Risk Contribution", also known as "Risk Parity". It optimises the weight of each asset class, so that each asset class contributes an equal amount of risk to the overall strategy. This means that instead of asset weights determining portfolio risk contributions, portfolio risk contributions determine asset weights.
What's under the bonnet?
The strategy is constructed six liquid low-cost physical ETFs representing major asset classes: UK equities, global equities, UK bonds, UK property, gold and ultrashort bonds (cash equivalents).
Is that all?
Yes. That's all. No leverage, no shorting, no hedging, no pair trades. The elegance of this approach is to use a dynamically changing weighting scheme (the weights changes each month) to derive the return premium.
Is there a history?
You can view the history of this strategy's benchmark which uses a systematic rules-based approach to Risk Parity for GBP investors.
Benchmark: Elston Dynamic Risk Parity Index launch date 2018, start date: 2011, strategy simulation start date 1997. The index was discontinued, but the strategy is available on request.
Strategy Objectives
The Elston Dynamic Risk Parity strategy is a multi-asset risk-based strategy. The index strategy is designed to allocate dynamically to a diverse range of asset classes such that each asset class exposure contributes equal risk to the overall strategy. The strategy also limits the overall level of volatility.
The index provides a systematic rules-based approach for providing risk-based diversification with differentiated returns and constrained risk.
Responding to the all-weather challenge:
1. All-weather strategy
2. Risk-based diversification
3. Dynamic multi-asset approach
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