In a context of low expected returns for most traditional asset classes where the bulk of future returns comes from “equity-like” exposures, building diversified strategic portfolios with attractive expected returns is challenging.
Style factors are weakly correlated with traditional asset classes and represent a new source of potential return and diversification for investors.
A strategy based on robust style factors that delivered persistent risk premia over the very long term is relevant for a strategic asset allocation.
The strategy uses a systematic approach which aims to capture 3 robust style premia (value, momentum and carry) across 3 asset classes (equity, bond and currency) through 9 customised style portfolios. Each style portfolio combines long and short positions, to capture the style premium in its ""purest"" form. The allocation of each style portfolio derives from the ranking of the investment universe on a defined metric: the style portfolio is long the better ranked assets, while being short the lower ranked.
The 9 style portfolios are then combined to maximise diversification across styles and asset classes, with no factor timing.
The strategy is implemented using highly liquid derivatives only. Only one portfolio is actually implemented, once all style portfolios positions have been netted.
- Our approach is focused and disciplined: we have selected 3 well-established and robust style factors (value, carry and momentum), each implemented across equity, bond and currency markets.
- The investment process is systematic and transparent: the factor exposures are implemented in their purest form, taking long and short positions, with no structural exposure to any asset class.
- The HSBC Multi-Asset Style Factors strategy is liquid and cost efficient: the investment strategy is implemented at the aggregate level using highly liquid derivatives only.