Our aim is to have a portfolio with multiple concurrent diversified investment strategies. Correlation can be misleading and poorly suited for constructing a diversified portfolio. The crux of the problem is that correlations are highly variable and critically dependent on prevailing circumstances.
In our portfolio construction and risk management processes we focus on the underlying drivers that are expected to affect positions and strategies. The drivers are the cause, the correlation is the consequence. In order to ensure a diversified portfolio, our portfolio construction process aims to implement strategies that have different drivers through a proprietary principal component optimisation process.
The portfolio construction process is therefore largely a continuous risk budgeting process subject to the mandated investment parameters of the Fund.
