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Riding risk premia: boutique star shares his strategy

Riding risk premia: boutique star shares his strategy

German boutique Quoniam Asset Management is tapping into a sea change.

The Union Investment-owned group is well aware that conventional markets are leaving investors underwhelmed and its Quoniam Global Risk Premia fund is helping to fill this void.

Citywire + rated Markus Ebner, who is lead manager in a team-based approach, which boasts AAA-rated Thomas Kieselstein among its ranks, says institutional investors are now more willing to look beyond their normal go-to asset classes as low growth and minimal yields persist.

‘Assets within our risk premia funds – covering both the global and alternative version we launched in September – are now at more than €700 million, as we have seen a very strong dynamic in the last few months.

‘There are two reasons for that: one is low levels of correlation to the equity market; and clients are also happy with performance,’ Ebner says.

Top-decile player

In the past 12 months to the end of July, Ebner has risen up the Alt Ucits – Multi-Strategy sector rankings, having returned 5.2% in euro terms, at a time when the average manager in the 80-strong group lost 1.9%. This places Ebner among the top 10 performers on a one-year basis.

Highlighting one of several drivers of performance, Ebner believes the focus on equity and fixed income risk premia in the European market has been pivotal.

‘Our analysis has shown that the alternative equity risk premia in Europe over the longer horizon are higher than the US. The inefficiencies in the European market tend to be greater, so it’s easier to capitalise on the opportunity within this space,’ he says.

The fund as a whole invests either directly or through options across 14 risk assets over several different asset classes from around the world.

The Frankfurt-based manager says: ‘So that is equities, bonds, FX and volatility and we do it by applying an equal risk contribution approach, which means each risk premia contributes the same amount of risk to the fund.

‘We use single equity stocks, equity index futures, bond index futures, FX forwards, options and futures on volatility but no portfolio swaps. We also want to separate risk premia from each other.’

Staying alert

With the US election on the horizon, however, Ebner warns against forecasting, as fast-changing sentiment can catch investors out. ‘We look at risk premia on a monthly basis to see how the ratios have evolved.

‘When it comes to equities, for example, we need to consider whether it is still a value stock or do we have to trade? It is about keeping a balance between different risk premia. It is not buy and hold in that sense, as the implementation within risk premia is active,’ he says.

The extent of this research and data-crunching underpins the fund’s genesis and its continued success.

‘We started our research for the fund about four-and-a-half years ago and the idea was to combine different sources of returns and different sources of risk,’ Ebner says.

‘As you can imagine it is quite a complex product, as you have to combine risk premia carefully. It took us two years of research not only to develop the strategy but also to implement the technical framework.’

‘It was kind of a slow starter,’ adds Kieselstein with a laugh. ‘There was a lot of talk about risk premia investing but not all of the approaches had the cost consciousness we wanted, so we took the time to make sure this particular strategy was right.’

These comments originally appeared in the October edition of Citywire Selector magazine. Ratings accurate at the time of magazine publication.

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