Active Risk Management in Shaky Markets


FRANCISCO BIDO: Hello, this is Francisco Bido, lead portfolio manager for the Integrated Alpha strategies.

As you are surely aware, there’s war in The Ukraine.

You might be asking if there have been any significant changes in the portfolio and the answer is no, it’s just a resounding no, and the reason for that is that I have a very strong discipline in regards to risk management.

So let’s take a few minutes and discuss how we do risk management in the portfolio.

Let’s consider our overexposure or overweight to Information Technology.

We believe it is justified because it is a smart risk.

Let me explain why.

As an active manager, we obviously need to select winning names, so we do that but you know that alone it’s not enough.

We need to be able to answer questions like the following three questions:

Question number one, is there a measurable economic thesis supporting the overweight and what could possibly go wrong? And if it does go wrong, what is the impact on the portfolio?

Another question is, is the sector in this case Information Technology and the quant factors that are associated with it, are they overcrowded?

And what that means is everybody and their dog in there. You know, everybody just throwing the kitchen sink at it.

If it is, then those trades could be risky in negative sense of the word.

And the third question is, what is the Information Technology sector correlated to?

And that’s really very important and what that means is if information technology goes up then which sub portfolio or subset of stocks in the portfolio is likely to follow it up and even more importantly, which ones are going to follow it down or do the exact opposite, meaning, when information technology goes down then are there any sections of the performers that are likely to sustain it to be the discussion or the airbag. So all those are really important risk management questions and it’s just not limited to that.

We’re answering these questions we use both Quant tools, very sophisticated Quant tools and lots of investment management experience.

So there are many other things should take into account.

This is just to give you flavor to what goes on and how we get to answer them.

You know, have you ever heard that saying, “don’t lock the barn after the horse runs out?”

That’s kind of like what we do, right?

You know, so The Ukraine hits, you know, COVID hits, what else, back in many years back it was Greece or whatever, you know, the portfolio is always solid.

To conclude, our risk management, it is a critical component of our QuantActive investment process and results in a portfolio that can perform well in times of war and as well as in times of peace.

We have seen how global turmoil can create rich opportunities for title companies that we seek, as evidenced by our strong performance in 2020.

So that’s it for this episode. Signing out, be well, and hoping for peace in The Ukraine.