Aberdeen Standard Investments has helped develop an index to mitigate equity risks and deliver higher returns when markets fall.
The asset manager has worked with BNP Paribas to create the Global Risk Mitigation (GRM) Index for institutional investors and discretionary portfolio managers. The index should reduce portfolio volatility.
Aberdeen, which advised on the composition of the index, said the index came about as the firm sought to “solve” relevant problems to do with risk for itself.
Russell Barlow, global head of alternative investment strategies at Aberdeen Standard, said: “Client interest in risk mitigation strategies has increased over the past few years. At the same time efficient implementation routes have been notoriously hard to identify. Given this, and based on our extensive experience in this area, we decided to solve for the challenges we identified ourselves.”
The index specifically addresses aspects such as liquidity, transparency, minimising carry costs and the delivery of a “convex return profile” – meaning the index should deliver returns that get higher as the equity market falls further.
The index aims to deliver a downside beta to equities of -0.2 or lower and generate a reasonable level of additional convexity in large equity market falls.
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