June 2015 Who is Managing Your Risk?documents.efgroup.co.za/Documents/Boutique Collective...June...
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June 2015 Latest Trends in Smarter Risk Management… Barclays Risk Strategy Group Barclays Africa Group Limited Who is Managing Your Risk? Not for distribution: This document is prepared for discussion purposes only and is not to be distributed further. It is intended for professional, institutional, Investors only . Strictly Private and Confidential . The views expressed are those of the author and not necessarily of Barclays. This document does not constitute investment advice. Institutional Portfolio Risk Solutions Roland Rousseau [email protected] Hannes du Plessis [email protected] Thrishini Naidoo [email protected] “About 70-90% of what impacts our portfolio can be explained by various sources of risks, not by manager skill!” Eugene Fama (Nobel Economics laureate, Professor of Finance, University of Chicago Booth)
Transcript of June 2015 Who is Managing Your Risk?documents.efgroup.co.za/Documents/Boutique Collective...June...
June 2015
Latest Trends in Smarter Risk Management…
Barclays Risk Strategy GroupBarclays Africa Group Limited
Who is Managing Your Risk?
Not for distribution: This document is prepared for discussion purposes only and is not to be distributed further. It is intended for professional, institutional, Investors only . Strictly Private and Confidential . The views expressed are those of the author and not necessarily of Barclays. This document does not constitute investment advice.
Institutional Portfolio Risk Solutions
Roland [email protected]
Hannes du [email protected]
Thrishini [email protected]
“About 70-90% of what impacts our portfolio
can be explained by various sources of risks,
not by manager skill!”
Eugene Fama (Nobel Economics laureate, Professor of Finance,
University of Chicago Booth)
Barclays Risk Strategy Group | not for distribution
Historic Evolution of Fund ManagementThree Phases of Evolution
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1900 – 1970: Era of Heroism
Belief: Beat the market through investment skill- Heroes from stock picking and Value investing- Good research and hard work needs to be rewarded- Single benchmarks (eg S&P 500) – market cap weighted
1970 – 2000: Era of Realism
Belief: Markets are too efficient to outperform- Birth of passive investing (‘zero-sum game’)- The only portfolio that matters is the market (eg S&P 500)- Fama – markets are efficient but some returns cannot be explained
2000 – now: Era of Enlightenment
Belief: Markets are irrational, ‘social machine’- Birth of behavioural finance (‘Predictably Irrational’)- Keynes: investors make mistakes by buying shares they like- Anchoring, recency bias, bandwagon effect are rife- Chasing past performance and trackrecord = willing losers?
Current Thinking: Both Active and Passive Investments deliver excess risk
Barclays Risk Strategy Group | not for distribution 3
Norway begins a ‘risk management revolution’
William Goetzmann Stephen SchaeferAndrew Ang
The fund had broad global diversification across asset classes BUT
many of the asset classes had exposures to the same risk factors.
They showed that ’risk factor’ allocation is superior to asset allocation
Source: NBIM Annual Report
Barclays Risk Strategy Group | not for distribution 4
Did Fund Managers in SA manage your risk?
Asset Class Exposure
Manager C
Barclays Risk Strategy Group | not for distribution 5
Passive ≠ Smart Beta ≠ Active Quants
Risk-Factors (‘bad’ or unrewarded risks)eg SWIX, ALSI, Top-40
0%
Risk-Premia (‘good’ or rewarded risks)eg value, momentum, low volatility etc
5%
You don’t need aValue manageranymore to getValue exposure
Active Quants don’t publish their rules or an index
Mkt cap weightedindices (passive)expose investorsto excess risk(eg SWIX=20%NPN)
Barclays Risk Strategy Group | not for distribution 6
Combining Factors Adds Significant Value
- Better diversification- More consistent outperformance- Lower cost than traditional active funds
WITS SA Factor Indices
Conclusion
Institutional Portfolio Risk Solutions
Effective Risk Management is only possiblewith indices that capture portfolio risks ina low-cost and transparent manner
