Lombard Odier is launching two multi-asset funds, which are run using the risk-based strategy that underpins its own group pension scheme.
The LOS Vantage 1500 fund targets a return of cash plus 2-4% gross of fees with a maximum drawdown of 5%. Meanwhile, the Vantage 3000 fund uses leverage to try and achieve a 5-7% annualised return with a maximum drawdown of 10%. The maximum drawdown is taken from the average loss in the worst year in every 20 in back-testing.
Lombard Odier chief investment officer Stéphane Monier (pictured) said the bank identified five key risks over the long-term economic cycle. These are: duration, credit, equity, emerging and inflation, with the asset allocation aiming to identify and hold the classes best suited to the different phases of the economic cycle.
The portfolios hold passives, but the majority is in internal and third party funds. The active quotient is split between high conviction and absolute return strategies the bank believes can consistently deliver alpha, adding further diversification.
The fund can also use derivatives to build in downside protection and the portfolio can be rebalanced daily. Further downside protection is afforded by reducing exposures in falling markets although the fund will never drop its total market exposure beneath 30%.
Monier said the funds have an expected Sharpe ratio of 0.7, given that most asset classes are currently expensive and lower returns are anticipated in the coming years. The funds have a 1% annual charge.
Since launch in September 2009, Lombard Odier’s pension scheme, which has a similar mandate to Vantage 1500, has returned cash plus 3% annualised with volatility of 2.1% and a maximum drawdown of -3.5%.