e-fundresearch.com: What are your personal lessons learned from 2014 market developments?
Laurent Crosnier: Among the lessons we learned in 2014 is to avoid overcrowded positions, such as being short Duration which was a view widely shared by market participants in early 2014. Likewise,for the CHF peg which was abandoned by SNB in early 2015. Second, non-directional strategies delivered significant returns in 2014 with low associated volatility thus delivering high Information Ratio.
e-fundresearch.com: To what extent has your portfolio been able to benefit from the strong appreciation of the US-Dollar in the second half of 2014?
Laurent Crosnier: Our central scenario was that US growth would strengthen in 2014 especially after the disappointing figures in Q1. With the confirmation of said strengthening growth in US, with solid NFP on one hand and the weak economic data coming from both EZ and Japan on the other hand it became clear that the monetary policy paths would diverge. So a good means to take advantage of that situation was to be long the dollar against JPY and Euro either through spot positions or options to add convexity in the portfolios. Our long USD position was indeed a strong contributor to overall performance in the second half of 2014.
e-fundresearch.com: How optimistic is your view into the future and what obstacles and challenges should investors be prepared to overcome in 2015?
Laurent Crosnier: We are constructive on the strength of US growth in 2015, and we believe as well that activity in EZ should pick up following the Euro depreciation, the drop in oil prices and the QE implementation. So, we can expect some positive surprises in term of economic data from the EZ over the coming months.
For fixed income investors, the main challenge will be do deliver positive performances in a low (even negative) yield environment and facing the risk of rising yields. Therefore, directional strategies on the bond market won’t be the main driver of performances and could show very negative asymmetric risk profile, instead relative value trades should deliver better risk adjusted returns in 2015. These strategies, such as country spread allocation, yield curve arbitrages, spread products (EMD, Credit IG, HY) and other long/short strategies, exhibiting no or low market betas, will generate significant returns without exposing portfolios to the risk of rising yields. Finally, diversification across risk factors and flexibility are the key concepts to deliver strong and stable returns in such a market environment.
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