investment viewpoints

All roads, any destination: engineering smooth investment journeys

All roads, any destination: engineering smooth investment journeys
Aurèle Storno - Chief Investment Officer, Multi Asset

Aurèle Storno

Chief Investment Officer, Multi Asset
Alain Forclaz - Deputy CIO, Multi Asset

Alain Forclaz

Deputy CIO, Multi Asset

All Roads, our multi-asset franchise, seeks smooth journeys: robust, stable returns throughout bullish and bearish markets, and across growth and inflation cycles. For our flagship balanced strategy, the outcome is a net return of cash plus 3% with annualised volatility of 5% and controlled drawdowns in the 11 years since inception.1

What is driving this performance, and how can All Roads adapt to various risk appetites and meet the growth, liquidity and diversification needs within broader portfolios?


Need to know

  • Our portfolio engine – the strategic asset allocation and dynamic overlays – aim to perform across macro regimes and accelerate to adapt to short-term market shifts
  • Diversifying across risk premia through liquid assets not only provides fuel, it also enables responsive braking: scaling our market exposure to manage drawdowns 
  • An adaptive vehicle, All Roads serves many destinations: including as a liquid alternative or source of diversifying growth alongside typical multi-asset strategies



The 60/40 portfolio broke down last year. Indeed, a critical review of its performance is warranted, but calls that the multi-asset staple should be abandoned are short sighted.

Instead, investors should question how diversified such strategies really are. As we have described, structuring multi-asset portfolios by capital allocation invariably masks proper diversification. Focusing on risk premia uncovers the dominance of equity risk in traditional multi-asset products, incentivising searches for genuine diversifiers.

For us, diversification means investing in different risk exposures. In practice, this involves analysing, understanding, and investing across the risk premia aiming to drive asset-class returns to meet defined risk appetites while remaining focused on capital preservation. We don’t aim to always deliver the best portfolio for a given environment but instead focus on smoothing the investment journey throughout market and economic cycles.

To achieve this, the purpose-built investment vehicle must have key qualities. An endurance engine that is also capable of sharp accelerations, responsive steering for all-weather control, dependable braking to avoid hazards and shock-absorbing suspension to compensate for unforeseen obstacles.

Since 2009, we have improved and fine-tuned All Roads as the strategy driving both the Lombard Odier Group pension plan and our external multi-asset offering. We are sharing the investment journey with our clients. How do we ensure this vehicle is fit for the ride?


Robust engine, responsive controls

The engine of our portfolio is our strategic asset allocation (SAA) and dynamic overlays. The SAA is designed to perform in three macroeconomic regimes that have been dominant throughout history – expanding growth, declining growth and inflationary shocks – by ensuring a consistent, fully liquid exposure to assets suited to these scenarios. These are: developed- and emerging-market equities and sovereign fixed income, inflation-linked bonds, credit and commodities.

Our tactical overlays aim to provide the acceleration needed to respond to short-term shifts in the landscape. Trend-following and volatility strategies, based on changes in price indicators, and our Macro Risk Premia (MRP) overlay, which draws data for growth, inflation and monetary-policy surprises, enable rapid portfolio responses. Based on different market and macro signals respectively, they also offer further diversification.


Clean braking, soft suspension

Foul weather, hazards and poor road surfaces are inevitable on long journeys. And when storms flood roads and scatter debris, other motorists can panic.

To go the distance, managing risk is essential. Indeed, avoiding or minimising exposure to market drawdowns not only improves risk-adjusted returns, it can also be more important than picking winners in the long run. For instance, if you invested USD 1 in the US stock market in 1988, by today you would have accumulated $32. If you missed the best 10 days, this payoff would fall to USD 15. But it would grow to USD 35 if you also avoid the worst 10 days as well. This reinforces the importance of managing downside risk.


FIG 1. Winning is mainly about not losing

Source: LOIM, Bloomberg as at February 2023. Past performance is not a guarantee of future results. For illustrative purposes only.


Aiming to minimise the impact of market drawdowns while remaining as diversified as possible, we actively manage the total exposure of the portfolio and may, at times, allocate meaningfully to the only certain safe haven: cash. By dynamically sizing a portfolio in this way, we aim to preserve capital, stay true to the prescribed risk target, maintain diversification and reduce volatility.

This dynamic drawdown management (DDM) methodology, which we have applied since inception and subsequently enhanced, is core to our way of risk-based investing.

It also helps us limit downside, but also stay true to performance targets by increasing our market exposure. For instance, if market conditions were supportive and the risk level too low given an investor’s return objective, the portfolio’s size could be increased (potentially through leverage) to reach the goal. Conversely, if risk is rising or too high, scaling down this portfolio and adding exposure to cash makes it possible to stay on target while maintaining diversification.


FIG 2. Reliable braking: adaptive risk allocation in All Roads multi-asset strategies.

Source: LOIM as at February 2023. For illustrative purposes only. Allocations may change. Capital protection/Capital preservation represents a portfolio construction goal and cannot be guaranteed.


Like a driver slowing to navigate hairpin turns, then accelerating once on a straight, this DDM process often combines with our SAA and tactical overlays to mitigate the impact of market drawdowns. Two recent episodes include:

  • The 2020 covid sell-off. We reduced overall portfolio exposure to 35% in March 2020, while taking profit on tail-risk insurance throughout the tumult, and were fully invested again by July 2020.2
  • The 2022 market rout. During last year’s real rates and energy-price shock, our commodity exposure contributed positively, combining with our DDM strategy to help limit the severity of the drawdown.

To scale the total market exposure of the portfolio while exercising dynamic overlays, liquidity is essential. Ensuring that all underlying assets are fully liquid enables these strategies to be implemented quickly and at low cost.

The importance of liquidity speaks to the need for the engine to have the right power source.


Fuelling the drive

Investment environments, like road conditions, are often unpredictable. With change being the only certainty, we do not forecast the direction of markets or performance of any asset class but instead prepare for any eventuality through diverse portfolio inputs.

No single asset class consistently drives our returns. Some years, duration leads. In others, equities and alternative risk premia do. Sometimes its commodities. Of course, performance drivers shift within much shorter timeframes, too. We see this as proof of genuine diversification: if a portfolio consistently has diversified sources of return as an output, this means that its input – the risk-premia exposures – were diversified to begin with.


FIG 3. The diverse return drivers of All Roads multi-asset strategies

Source: LOIM as at February 2023. Past performance is not a guarantee of future results. Holdings and/or allocations are subject to change. Performance attribution in EUR net of fees but excluding other unexplained factors, which include amongst other, FX effects, intraday and trading profit and loss..


For instance, in the deflationary decade leading up to 2022, our bond holdings performed well. However, due to the macro regimes informing our SAA, we remained prepared for an inflationary shock. As inflation and the return of real rates drove market returns from late 2021, returns from our commodities exposure came to the fore, contributing significantly for only the second time since we introduced it to the portfolio in 2016. For the asset class, this was a reprise of the late 1970s, when commodities were the chief diversifier before bonds took this mantle during the Great Moderation.

By focusing on risk premia, we believe investors can identify and gain exposure to the next diversifier – whatever it might be – as it comes to the fore. This helps to achieve a smoother return profile during periods of volatility.


FIG 4. Prepared for inflation, even before it was transitory

Source: LOIM as of February 2023. Past performance is not an indicator of future returns. Refers to LO Funds – All Roads EUR N share class, net of fees.


It Is also important to assess the resilience of assets as the environmental transition drives changes in policy, demand, and business models worldwide. At LOIM, our core sustainability conviction is that three major systems – energy, land and oceans, and materials – are transforming and will reshape the global economy. Across the All roads franchise, we currently integrate sustainability analysis into 70% of the economic exposure of our portfolio. This is achieved through house exclusions, ESG analysis and our proprietary implied temperature rise methodology, which assesses the degree to which assets are aligned with the decarbonisation trajectories required for their industries to achieve net zero by 2050.


Taking the wheel

Harnessing this engine, braking and suspension capabilities, how do we steer the All Roads portfolio?

To maintain our SAA, deploy tactical strategies and implement DDM, we believe it is best to invest as rationally as possible. By removing emotion in bullish markets, bearish episodes and everything in between, we expel behavioural biases that can distract us from our objectives, such as:

  • Loss aversion. The pain of past underperformance can lead to underinvestment or early exits from positions
  • Overconfidence. People often perceive their abilities to being artificially strong, which leads to rash or poorly informed decisions
  • Anchoring. Too much stock is placed in certain information, causing reluctance to exit underperforming positions when there are better alternatives

For this reason, the strategies driving All Roads are totally systematic, tested and – importantly – fully transparent. All of our thinking, and the disciplined implementation processes, are there for investors to see, always.


Improving through R&D

Believing in a scientific approach to the design and implementation of our risk models, active strategies and other portfolio features, we run a continuous research programme dedicated to risk-based investing. We aim for the outputs to have real-world applications, and our commodities exposure and MRP overlay are two examples of how our R&D has directly benefited All Roads.

With PhDs and Chartered Financial Analysts in our team, we are no strangers to high-calibre research. We apply our engineering backgrounds, financial expertise and investment experience on projects that can produce direct portfolio outcomes and prioritise those likely to have the most material effect on risk-adjusted performance.

Since the 2012 inception of All Roads, this research has led to improvements in our SAA, tactical overlays, DDM methodology and risk-modelling techniques. Our timeline for integrating these enhancements is evidence of our aim to always improve.


FIG 5. Timeline: research-driven innovations for All Roads

Source: LOIM as at February 2023. For illustrative purposes only.


One vehicle, many destinations

Irrespective of current conditions or outlook, we aim to improve the quality of the investment journey for a given risk tolerance by using a risk-based, multi-asset approach.

In our view, through superior diversification and drawdown management, risk-based investing can generate returns with a better Sharpe ratio, lower volatility and superior capital preservation over long time periods than traditional multi-asset approaches, such as the 60/40.


FIG 6. Risk-based multi asset for a smoother journey

Source: LOIM, Bloomberg as of February 2023. Past performance is not a guarantee of future results. For illustrative purposes only.


All Roads is an adaptable, high-performance vehicle. It can suit conservative, balanced, growth and riskier appetites – and its liquidity and strength in diversification lend it to multiple uses in broader portfolios. For example, as a:

  • Total-return, liquid-alternative solution for allocations including fund-of-hedge-fund portfolios
  • Satellite strategy for a core 60/40 or diversified growth portfolio. As such, it can be a complementary, liquid growth exposure, or a source of risk-based diversification 
  • Liquid diversifier within broad investment portfolios

For many of us at Lombard Odier, All Roads serves a different purpose: as the core strategy for the Group’s pension plan, its performance directly influences our financial futures. We are committed for the long haul! 

In a world characterised by unanticipated change, we believe the systematic, risk-based approach driving All Roads provides multiple benefits to a range of investors. Day in, day out, we practice an evidence-based, disciplined and dynamic approach to investing in diverse risk premia to navigate uncharted territory – for us, this is the essence of risk-based investing.

How do we implement risk-based investing in our multi-asset range? To learn more about All Roads, please click here.


[1] Source: LOIM. Past performance is not a guarantee of future results. Capital protection is a portfolio construction goal and cannot be guaranteed. Performance/data (as applicable) of LO Funds –All Roads Class EUR NA, net of all fees and expenses. Cash index: €STR. Capital protection/Capital preservation represents a portfolio construction goal and cannot be guaranteed. Target performance/risk represents a portfolio construction goal. It does not represent past performance/risk and may not be representative of actual future performance/risk. Strategy inception: 24 January 2012.

[2] Source: LOIM as at January 2023. Asset allocation/portfolio composition is subject to change. For illustrative purposes only.

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