DNA of a Manager Search: Equity Overlay
What happens to my portfolio when equities head south? To some extent, this question has led the portfolio construction conversation since 2008 – a year when supposedly diversified portfolios proved to be correlated in crisis conditions and popular risk models fell short. Many investors overhauled their approaches in the subsequent years to reduce equity factor risk and create more “all-weather” profiles. Until relatively recently, the emphasis had primarily been on implicit rather than explicit protection, such as greater allocations to strategies that exhibited a lower correlation with equities but delivered appropriate returns in an anaemic interest rate environment. From an industry standpoint, alternative investments have been the most obvious beneficiary of this era. We have seen the rise of unlisted infrastructure, private debt, alternative risk premia and an increasingly colourful universe of multi-asset strategies (see Seven Shades of Multi-Asset).
