New design for modern diversified growth funds

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New design for modern diversified growth funds

Ritesh Bamania - Head of UK and Ireland Institutional Clients and Solutions

Ritesh Bamania

Head of UK and Ireland Institutional Clients and Solutions
Alain Forclaz - Client Portfolio Manager

Alain Forclaz

Client Portfolio Manager

Diversified Growth Funds (DGFs) have been around for over a decade now. Despite receiving mixed press lately, they still have a place in a global portfolio, in our view, given the diversification benefit and the governance easing they aim to deliver.

Pension plan tolerance for drawdowns is reducing rapidly for many given the maturity of membership. Traditional DGFs (whether beta-based or alpha-based1 DGFs) focussed on reducing volatility. This measure needs to be replaced with explicit drawdown management, in our opinion. Separately, alpha-based DGFs have delivered somewhat disappointing returns over a number of years, probably causing, in no small part, the mixed feelings that have befallen the sector of late.

Our design combines a beta-based DGF, complemented with well-understood sources of alpha, and an explicit drawdown management framework. We believe this helps to potentially achieve both the strong market performance that many beta-based managers enjoy, as well as the low drawdowns that alpha-based managers aim for.

Finally, as pension plans de-risk, we believe the liquidity for DGFs need to improve in order to provide the required flexibility. This is also an important feature of our portfolio design.

 

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Wichtige Hinweise

For professional investors only.
This document has been issued by Lombard Odier Funds (Europe) S.A. and prepared by Lombard Odier Asset Management (Europe) Limited, authorised and regulated by the Financial Conduct Authority (the “FCA”), and entered on the FCA register with registration number 515393.
The Fund is authorised and regulated by the Luxembourg Supervisory Authority of the Financial Sector (CSSF) as a UCITS within the meaning of EU Directive 2009/65/EC, as amended. The management company of the Fund is Lombard Odier Funds (Europe) S.A. (hereinafter the “Management Company”), a Luxembourg based public limited company (SA), having its registered office at 291, route d’Arlon, L-1150 Luxembourg, authorized and regulated by the CSSF as a Management Company within the meaning of EU Directive 2009/65/EC, as amended. The Fund is only registered for public offering in certain jurisdictions. The articles of association, the prospectus, the Key Investor Information Document, the subscription form and the most recent annual and semi-annual reports are the only official offering documents of the Fund’s shares (the “Offering Documents”). They are available on http//:www. loim.com or can be requested free of charge at the registered office of the Fund or of the Management Company, from the distributors of the Fund or from the local representatives as mentioned below:
Austria. Supervisory Authority: Finanzmarktaufsicht (FMA), Representative: Erste Bank der österreichischen Sparkassen AG, Graben 21, A-1010 Wien – Belgium.: Financial Services Provider : CACEIS Belgium S.A.,Avenue du Port 86C, b320, 1000 Brussels – France. Supervisory Authority: Autorité des marchés financiers (AMF), Representative: CACEIS Bank, place Valhubert 1-3, F-75013 Paris – Germany. Supervisory Authority: Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin), Representative: DekaBank Deutsche Girozentrale, Mainzer Landstraße 16, D-60325 Frankfurt am Main – Italy. Supervisory Authority: Banca d’Italia (BOI) / ConSob, Paying Agents: Société Générale Securities Services S.p.A., Via Benigno Crespi, 19/A – MAC 2, 20159 Milano, State Street Bank S.p.A. Via Ferrante Aporti, 10, 20125 Milano, Banca Sella Holding S.p.A., Piazza Gaudenzio Sella, 1, 13900 Biella, Allfunds Bank S.A., filiale italianaVia Santa Margherita 7, 20121 Milano, – Liechtenstein. Supervisory Authority: Finanzmarktaufsicht Liechtenstein (“FMA”), Representative: Verwaltungs- und Privat-Bank Aktiengesellschaft, Aeulestrasse 6, LI-9490 Vaduz, LGT Bank AG Herrengasse 12, 9490 Vaduz, Liechtenstein – Netherlands. Supervisory Authority: Autoriteit Financiële Markten (AFM). Representative: Lombard Odier Funds (Europe) S.A., Netherlands BranchNoMA House – Gustav Mahlerlaan, 1081 LA Amsterdam, The Netherlands- Spain. Supervisory Authority: Comisión Nacional del Mercado de Valores (CNMV). Representative: Allfunds Bank S.A. C/Nuria, 57 Madrid – Switzerland. Supervisory Authority: FINMA (Autorité fédérale de surveillance des marchés financiers), Representative: Lombard Odier Asset Management (Switzerland) SA, 6 av. des Morgines, 1213 Petit-Lancy; Paying agent: Bank Lombard Odier & Co Ltd, 11 rue de la Corraterie, CH-1204 Geneva. UK. Supervisory Authority: Financial Conduct Authority (FCA), Representative: Lombard Odier Asset Management (Europe) Limited, Queensberry House, 3 Old Burlington Street, London W1S3AB. NOTICE TO RESIDENTS OF THE UNITED KINGDOM The Fund is a Recognised Scheme in the United Kingdom under the Financial Services & Markets Act 2000. Potential investors in the United Kingdom are advised that none of the protections afforded by the United Kingdom regulatory system will apply to an investment in LO Funds and that compensation will not generally be available under the Financial Services Compensation Scheme. This document does not itself constitute an offer to provide discretionary or non-discretionary investment management or advisory services, otherwise than pursuant to an agreement in compliance with applicable laws, rules and regulations.
An investment in the Fund is not suitable for all investors. There can be no assurance that the Fund’s investment objective will be achieved or that there will be a return on capital. Past or estimated performance is not necessarily indicative of future results and no assurance can be made that profits will be achieved or that substantial losses will not be incurred. Where the fund is denominated in a currency other than an investor’s base currency, changes in the rate of exchange may have an adverse effect on price and income. All performance figures reflect the reinvestment of interest and dividends and do not take account the commissions and costs incurred on the issue and redemption of shares/units; performance figures are estimated and unaudited. Net performance shows the performance net of fees and expenses for the relevant fund/share class over the reference period. This document does not contain personalized recommendations or advice and is not intended to substitute any professional advice on investment in financial products. Before making an investment in the Fund, an investor should read the entire Offering Documents, and in particular the risk factors pertaining to an investment in the Fund, consider carefully the suitability of such investment to his/her particular circumstances and, where necessary, obtain independent professional advice in respect of risks, as well as any legal, regulatory, credit, tax, and accounting consequences. This document is the property of LOIM and is addressed to its recipient exclusively for their personal use. It may not be reproduced (in whole or in part), transmitted, modified, or used for any other purpose without the prior written permission of LOIM. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful. This document contains the opinions of LOIM, as at the date of issue. The information and analysis contained herein are based on sources believed to be reliable. However, LOIM does not guarantee the timeliness, accuracy, or completeness of the information contained in this document, nor does it accept any liability for any loss or damage resulting from its use. All information and opinions as well as the prices indicated may change without notice.. Neither this document nor any copy thereof may be sent, taken into, or distributed in the United States of America, any of its territories or possessions or areas subject to its jurisdiction, or to or for the benefit of a United States Person. For this purpose, the term “United States Person” shall mean any citizen, national or resident of the United States of America, partnership organized or existing in any state, territory or possession of the United States of America, a corporation organized under the laws of the United States or of any state, territory or possession thereof, or any estate or trust that is subject to United States Federal income tax regardless of the source of its income. Source of the figures: Unless otherwise stated, figures are prepared by LOIM.
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Important information on performance: Past performance is not a guarantee of future results. Where the fund is denominated in a currency other than an investor’s base currency, changes in the rate of exchange may have an adverse effect on price and income. All performance figures reflect the reinvestment of interest and dividends and do not take account the commissions and costs incurred on the issue and redemption of shares/units; performance figures are estimated and unaudited. Net performance shows the performance net of fees and expenses for the relevant fund/share class over the reference period. Gross performance does not reflect the deduction of investment management fees. Individual client returns will be reduced by investment management fees and other expenses that the account may incur. Source of the figures: Unless otherwise stated, figures are prepared by LOIM.
Any benchmarks/indices cited herein are provided for information purposes only. No benchmark/ index is directly comparable to the investment objectives, strategy or universe of a fund. The performance of a benchmark shall not be indicative of past or future performance of any fund. It should not be assumed that the relevant fund will invest in any specific securities that comprise any index, nor should it be understood to mean that there is a correlation between such fund’s returns and any index returns.
Fixed Income: The Fund’s investments in Fixed Income securities are subject to the risks associated with debt securities including economic conditions, government regulations, market sentiment, and local and international political events. In addition, the market value of fixed income securities will fluctuate in response to changes in interest rates, currency values, and the creditworthiness of the issuer. If an issuer’s financial condition worsens, the credit quality of the issuer may deteriorate making it difficult for an investor to sell such investments.
Emerging Market: Emerging markets securities may be less liquid and more volatile and are subject to a number of additional risks including, but not limited to, currency fluctuations and political instability.
Currency: If the funds are denominated in a currency other than that in which the majority of the investor’s assets are held, the investor should be aware that changes in rates of exchange may affect the value of the funds’ underlying assets. The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.
Derivatives: The strategy may include the use of derivatives. Derivatives often involve a high degree of financial risk because a relatively small movement in the price of the underlying security or benchmark may result in a disproportionately large movement in the price of the derivative and are not suitable for all investors. No representation regarding the suitability of these instruments and strategies for a particular investor is made.
Model risk: Models may be misspecified, badly implemented or may become inoperative when significant changes take place in the financial markets or in the organization. Such a model could unduly influence portfolio management and expose to losses.
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