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Risk Management

Downside Risk Management

The Global Titans fund?s seeks to provide equity type returns over the long term and to provide protection strategies to reduce the downside risk for investors in the event of a significant correction in the markets. We try to avoid a catastrophe which can be devastating to investors as was seen in 2008/9.

The fund deploys downside protection in the form of out of the money index puts. The purpose is to protect the fund from big draw downs in the market. This is dynamically managed through the cycle and the level of protection is determined by the cost of the protection, equity market valuations and Insync?s assessment of factors that may result in a significant market fall. As a base, we will usually have 25% of the portfolio protected. Through the cycle it can vary from 0 ? 100%. Our put protection strategy is not designed to protect the fund from small down movements in the markets.

Currency Risk Management

Investing in international equities allows investors to share the growth & profits of some of the world?s most successful companies. It also provides investors with access to industries that are not represented, or are under-represented, in Australia. With around 2% of the world?s equity capital or investment opportunities in Australia, it makes sense to have some exposure to international equities. However, with the diversification offered by international equities comes an additional factor not found in domestic equity portfolios ? currency risk.

The movement of exchange rates can have a big impact on the short to medium term returns from international funds. Insync has reviewed the empirical evidence on the appropriate currency hedging approach to support our investment process. Over the very long-term (15-20 years) a hedged portfolio return is similar to an unhedged portfolio return. However, in relation to a typical investor?s timeframe of 3 to 5 years, the impact of either of these hedging policies is shown to be significant.

The evidence supports a dynamic approach to hedging a portfolio, resulting in decreased volatility whilst maintaining the benefits of international diversification.

Insync uses a mean-reversion model to actively manage the level of currency hedging in the portfolio, which can vary from 0% to 100% depending on where the AUD exchange rate is compared to the underlying currencies in which the investments have been made at any point in the cycle. Typically changes are made when levels are significantly away from their long term average.