Systematic Alternative Risk Premia
Parametric has teamed up with California-based Research Affiliates to launch a new institutional investment strategy, called Systematic Alternative Risk Premia, or SARP.
The strategy is designed to produce better returns and lower volatility than traditional alternative investment approaches through three key investing factors - Value, Momentum and Carry. The strategy is also known as Systematic Global Macro and covers equities, bonds, currency and commodities markets.
SARP is an alternative to hedge funds, designed by Research Affiliates and Parametric to deliver attractive absolute returns (expected to outperform short–term cash by 7-9%, with moderate volatility of 10-12% on average) at a reasonable cost, in a liquid and transparent way.
Who is it designed for?
Australian institutional investors seeking alternative sources of returns which aren't correlated to what is often their main source of investment risk – equities. It is also designed to give those investors an alternative to opaque, illiquid and expensive hedge funds that they may have looked to in the past.
“We know that super funds need to find alternative sources of returns which aren’t correlated to their main source of investment risk – equities. But funds also have tighter liquidity budgets than they used to and fee pressures. These things, combined with a growing aversion to strategies that aren’t transparent, make it the right time for us to launch SARP, which is a liquid, transparent alternatives solution that provides attractive, diversifying returns in a cost-effective manner," Parametric’s Australasian CEO, Chris Briant, said.
"In a low return environment, every basis point is going to count": Q&A with Parametric's Chris Briant
- Can you explain the investing methodology?
We buy attractive (and sell unattractive) securities in terms of their carry, value and momentum characteristics, and we do that in a low-cost, liquid and transparent way.
- Can you describe in more detail the Value, Momentum and Carry investing factors used in the product?
These are tried and tested factors, that have been researched extensively for decades. Value pays off when you get longer-term mean reversion, Momentum pays off when shorter-term price trends continue, and Carry gives good returns if prices stay the same. They don’t all work in all asset classes all the time, which is why we have combined them as we have.