Financial Trends: Nowhere to hide

• Fund managers have been tripped up by global stocks and bonds falling in tandem in the first quarter.
• This year’s quarterly slump is enduring enough to leave investors questioning how to balance risks in their portfolios.
• Our own research highlights the problems faced by investors of trying to find uncorrelated funds.

The Financial Times recently published an article titled 'Nowhere to hide' for investors in market turbulence. It highlights the daunting prospect facing investors of a bear market in equities and bonds coinciding. The opening paragraphs lay it out clearly and starkly.

‘Fund managers have been tripped up by global stocks and bonds falling in tandem in the first quarter. 

The FTSE All World stocks index, including dividends, dropped 5.1 per cent in the first three months of the year, reflecting rising benchmark interest rates and the outbreak of war in Ukraine. 

At the same time, soaring inflation and tighter monetary policy took a 6 per cent bite from the Bloomberg Global Aggregate Bond index, leaving those shying away from stocks without a reliable bolt hole. 

The two key markets underpinning global finance are seldom correlated and such moves tend to be rare and brief. This year’s quarterly slump — the worst synchronised decline since both benchmarks have been available — is enduring enough to leave investors questioning how to balance risks in their portfolios.’

The article goes on to discuss the classic 60/40 portfolio allocation model and how gloomy its prospects are for the foreseeable future. One leading fund manager quoted in the article highlights it is recommending a 50/30/20 allocation model, the 20% being allocated to alternatives. 

Whilst on face of it this presents a solution for investors, the reality is that it creates a whole new problem for them - finding alternative funds that are truly uncorrelated and perhaps more importantly, have the potential to make gains when traditional risk assets are falling.

EPIC Financial Trends is one of the few funds that has that potential. With its unconstrained long/short investment process, it offers investors the opportunity to realise positive returns in a negative environment for traditional asset classes.

As of 9 May 2022, the B GBP share class is up 7.61% so far this year, having benefitted most notably from short exposures to government bonds and the Japanese Yen. 

Our own research highlights the problems faced by investors of trying to find uncorrelated funds. The correlation matrix below shows what they are up against. Whilst there are, no doubt, some funds that are uncorrelated to the IA Mixed Asset sectors in others, such as IA Targeted Absolute Return for example, finding them is akin to looking for a needle in a haystack. In comparison, EPIC Financial Trends has had low correlation to all the IA Mixed Asset sectors and to all the alternatives sectors that investors typically turn to for their diversifiers.

If you are looking for diversification and the potential for further downside protection, you should consider an allocation to EPIC Financial Trends.