Parametic has announced the launch of its new strategy, known as Systematic Alternative Risk Premia (SARP) for Australian institutional investors, which will be launched in partnership with US-based Research Affiliates.
The new strategy would be based on the power of three key investing factors - value, momentum and carry - which is sometimes referred to as systematic global macro and covers equities, bonds, currency and commodities.
Parametric’s SARP strategy would also combine Research Affiliates’ research with its own implementation efficiency focus, it said.
According to Research Affiliates’ global head of asset allocation, Mike Aked, the definitions of each factor and each asset class (equities, bonds, currencies and commodities) were chosen to maximise the future opportunities for the strategy.
“Our experience of managing smart beta strategies for over a decade has reinforced the importance of robustness and implementation characteristics, rather than simply picking the best historical or back test performing factors,” he said.
“Putting the 12 individual strategies together in a single portfolio provides the potential for strong absolute returns at moderate levels of risk and leverage. The final approach, reflecting the collaboration with Parametric, includes features designed to avoid over-complication and reduce the impact of real-world portfolio costs like brokerage, foreign exchange commissions and taxes.”
Parametric’s Australasian chief executive, Chris Briant, stressed that Research Affiliates’ studies and Parametric’s own research supported a target outperformance over cash of seven to nine per cent each year, net of fees and transaction costs.
“Our target Sharpe ratio of 0.8, net of fees and costs, reflects the value of combining diversified strategies, many of which exhibit individual Sharpe ratios of less than half this combined target,” he said.
“Low yields, high valuations and anaemic global growth have pushed down expected returns. Given these conditions, the likelihood of achieving anything close to a five per cent real return is generally considered quite slim, hence the need for alternative solutions, such as SARP.”