This strategy is offered by Newton Investment Management Ltd (‘NIM’). This strategy may be managed by an affiliate of NIM and may apply a research process that differs from that applied by NIM.

Strategy overview

The strategy seeks to balance the sources of portfolio risk across major asset classes, including global equities, global credit, sovereign debt and commodities, and aims to capture additional diversification through a proprietary process that adapts the portfolio to be more robust to the conditional correlation of markets during periods of stress.

Risk Parity DRQ seeks out maximum diversification within and across asset classes, enabling the strategy to carry more compensated sources of exposure than a less diversified alternative. Diversification is further enhanced through proprietary measures of conditional correlation designed to identify true diversification. Via this diversification, the strategy seeks to mitigate a portion of downside exposure in difficult markets and enhance upside under favourable conditions.

We believe our strategy differentiators are diversification within asset classes including commodities, consistent delivery of a targeted level of risk, and better awareness of the conditional nature of correlations during stress environments.

Investment team

Our investment team of research analysts and portfolio managers work together across regions and sectors, helping to ensure that our investment process is highly flexible.

A team of 18 investment professionals.

20
years’ average investment experience
12
years’ average time at Newton

Strategy profile

Objective

Risk Parity DRQ seeks maximum total return at a specific targeted level of risk. The strategy aims to deliver a consistent amount of risk through time, and adjusts exposures as market risk varies and as the relationship among strategy constituents changes in response to evolving economic conditions. The strategy goes beyond traditional measures of correlation, with the goal of ensuring significant exposure to assets that have tended to bolster the strategy during historical stress periods.

Strategy inception

2 May 2016

Past performance is not a guide to future performance. Your capital may be at risk. The value of investments and the income from them can fall as well as rise and investors may not get back the original amount invested.

Key investment risks

  • Objective/performance risk: There is no guarantee that the strategy will achieve its objectives.
  • Currency risk: This strategy invests in international markets which means it is exposed to changes in currency rates which could affect the value of the strategy.
  • Derivatives risk: Derivatives are highly sensitive to changes in the value of the asset from which their value is derived. A small movement in the value of the underlying can cause a large movement in the value of the derivative. This can increase the sizes of losses and gains, causing the value of your investment to fluctuate. When using derivatives, the strategy can lose significantly more than the amount has invested in derivatives.
  • Changes in interest rates & inflation risk: Investments in bonds/money market securities are affected by interest rates and inflation trends which may affect the value of the strategy.
  • Credit ratings and unrated securities risk: Bonds with a low credit rating or unrated bonds have a greater risk of default. These investments may negatively affect the value of the strategy.
  • Credit risk: The issuer of a security held by the strategy may not pay income or repay capital to the strategy when due.
  • Emerging markets risk: Emerging markets have additional risks due to less developed market practices.
  • Counterparty risk: The insolvency of any institutions providing services such as custody of assets or acting as a counterparty to derivatives or other contractual arrangements, may expose the strategy to financial loss.
  • Leverage risk (derivatives): The use of leverage, such as engaging in reverse repurchase agreements, lending portfolio securities, entering into futures contracts or forward currency contracts, investing in inverse floaters, entering into short sales, the use of portfolio leverage or margin and engaging in forward commitment transactions, may magnify the strategy’s gains or losses. Because many derivatives have a leverage component, adverse changes in the value or level of the underlying asset, reference rate or index can result in a loss substantially greater than the amount invested in the derivative itself. Certain derivatives have the potential for unlimited loss, regardless of the size of the initial investment.