Risk Responders Strategy
The Risk Responders Strategy is a cash-efficient, fully systematic combination of Dynamic Convexity (long equity volatility), Core Markets Trend, and Alternative Markets Trend. The strategy combines these strategies into one integrated vehicle and deploys additional leverage to each sleeve, with the intention providing robust risk mitigation in the face of both market crises (Dynamic Convexity), as well as during prolonged risk asset declines or macro asset regime shifts (Trend).
Risk shifts dynamically between long volatility and trend exposures over time, such that the portfolio risk tends to be primarily driven either by long volatility or trend themes, based on how the model views the comparative attractiveness of the underlying strategies. This combination of risk mitigating exposures is expected to deliver a strong risk-adjusted return in most environments, particularly during major equity market crises. Profit-taking is embedded into the model, relieving investors of the pressure to time their exit from the strategy and this allows it to be held through the cycle as a source of positive portfolio convexity.
The inflation strategy is an inflation-oriented absolute return, benchmark agnostic strategy that targets a consistent level of active risk. The strategy seeks to benefit from inflation exposure long term, while capitalizing on inflation volatility and dislocations short-and-medium term. Strong and diversifying sources of alpha within the inflation-sensitive markets traded should further improve the strategy’s risk-adjusted return. The strategy takes risk along three dimensions: Macro Opportunities, Micro Opportunities, and Relative Value Opportunities. These three themes each typically occupy a third of the strategy’s active risk. While we believe this approach has an ability to generate out-performance in different market environments, we believe that the current tailwinds to inflation driven by unprecedented Monetary and Fiscal Policy represent a favorable macroeconomic backdrop for such a strategy. The strategy employs a discretionary trading approach, where risk management is integral to every step in the process.
The pure trend following strategy seeks to exploit medium to long-term trends frequently observed in 62 of the world’s most liquid equity index, fixed income, foreign exchange, and commodity markets to generate positive returns. It is built through a combination of deep quantitative research and discretionary macro trading expertise, and is sensibly constructed to maximize alpha instead of capacity, using a limited number of parameters to improve robustness. We embed common-sense risk management logic into our unique algorithm, combining the attractive attributes of medium to longer-term signals with the nimbleness to get into or out of positions quickly if needed.
Systematic Alternative Markets Trend
The strategy applies One River’s systematic trend algorithm to 110 more esoteric global markets which include developed and emerging market interest rate swaps, emerging market foreign exchange, credit indexes, equity market sectors, European power and emissions markets, etc – markets that are not easily accessible by traditional CTAs. One River has traded these global macro markets for years and has developed the systems to price, trade, and quantify/manage the risks. The strategy embeds common-sense risk management logic into the unique algorithm, combining the attractive attributes of medium to longer-term signals with the nimbleness to get into or out of positions quickly if needed. The fund is the first of its kind to offer a management fee-only share class.
Volatility Relative Value
The discretionary market-neutral strategy takes long/short positions in volatility markets across global equity index, foreign exchange, interest rate and commodity volatility markets. The strategy can generate positive returns in both bullish and bearish equity environments. The team applies a specialized quantitative volatility infrastructure to support our fundamental portfolio managers using inputs such as valuation, microstructure data, structured product data, and dealer hedging activity. Macro awareness is integral to the investment process, creating a more complete understanding of the market environment rather than relying purely on traditional statistical metrics. Our expertise in finding ways to be long volatility while minimizing carry is a distinct advantage when constructing a Vol RV book that can generate strong, differentiated returns and is built to withstand market dislocations.
This highly convex systematic strategy trades volatility futures, volatility options, and options on major global equity indexes from the long-side only. It codifies several discrete volatility trading strategies developed and honed through years of trading these markets on a discretionary basis and combines them into a fully systematic portfolio. The strategy capitalizes on aspects of momentum, carry and value found in volatility markets and their curves to maximize upside capture in periods of stress while minimizing bleed in times of relative calm. Risk is adjusted automatically using a range of signals and measures of value. Profit-taking is embedded into the algorithm, relieving investors of the pressure to time their exit from the strategy and this allows it to be held through the cycle as a source of positive portfolio convexity.
Discretionary Long Volatility
The strategy is structured to profit from a rise in cross-asset volatility that is typical at cycle turns and during periods of transition. We believe that in recent years, a period of major economic, policy and political transition has begun, manifesting in markets most visibly in Q1 2020. The strategy is built for such an environment. We take a value-oriented approach to portfolio construction, looking for the best risk-reward opportunities to be long volatility across the globe, with a dominant allocation to equity and high-beta volatility. Macro awareness is integral to the investment process and helps the team evaluate the risk/reward of various asset class and market exposures relative to potential catalysts for change. The highly convex strategy is built to minimize carry, and partially crystalize profits through rebalancing and asset class rotation.
For institutional clients who require a customized solution, One River can deliver any combination of our investment strategies in a fund-of-one, managed account, swap or UCITS compliant structure. We partner with such bespoke clients in one of three ways; (1) they present us with an investment need to tilt their portfolio and/or hedge a specific risk and we then create a combination of our strategies to achieve that objective, (2) they ask us to build a holistic, stand-alone portfolio of our strategies that is designed to fit well within their larger alternatives portfolio, and (3) they turn to us for solutions that materially reduce the expense ratio and increase the capital efficiency of their existing portfolio while maintaining equivalent market exposures.
Our alternative strategies leverage the full
capabilities of our investment team’s experience over
multiple decades running both discretionary and
systematic strategies. Our approach is distinct in the
industry, leveraging macro awareness, data-driven
processes, and market-tested risk management.
We offer six strategies across three categories: Volatility, Trend, and Inflation. Within Volatility, we operate two Long Volatility strategies, and one alpha-seeking Volatility Relative Value strategy. Within Trend we offer two fully systematic strategies, one of which is focused on major markets, and another on alternative markets. Our forthcoming Inflation strategy seeks to benefit from an inflationary backdrop and higher potential inflation volatility.
Improving the Industry’s Dominant Portfolios
We explore a positive-expectancy portfolio overlay that is negatively-correlated to risk assets. We first published the research last April and have updated it following the dramatic Q1 2020 real-time stress-test. With US treasury yields so close to zero, and thus unable to provide a material offset to equity/credit risk, never has this overlay been so vital in the construction of durable portfolios…VIEW RESEARCH PAPER
Observations on Post-Covid Inflation Data
We’ve received two months of inflation data since the coronavirus shut down and they paint an interesting picture of the economy. The impact is broadly but not exclusively deflationary. It’s these divergences that tell a story of a recession very different from those in recent history. Historically recessions have been broad based demand destructions but recent data reflect something more complex…We’ve received two months of inflation data since the coronavirus shut down and they paint an interesting picture of the economy. The impact is broadly but not exclusively deflationary. It’s these divergences that tell a story of a recession very different from those in recent history. Historically recessions have been broad based demand destructions but recent data reflect something more complex…VIEW RESEARCH PAPER