Apostle Funds Management

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Windham Risk Regime Investing

Description

A risk-based, multi-asset class solution. It offers a big picture perspective by answering the question, "what are the current risk conditions and how might that impact the portfolio?" By recognising that markets and asset classes are neither consistent nor stable through time, Windham proactively adjusts portfolio allocations based on the prevailing market risk environment rather than reacting after risk has done its damage.

Investment Objective

  • Produce higher positive returns than CPI + 5% with less risk over the long-term by benefiting from opportunities in both rising and falling markets.
  • Downside protection, with the potential for upside during periods when risk is being rewarded.

Primary Investments

Through active investment selection of primarily exchange traded funds (ETFs), this portfolio accesses global financial markets in a highly liquid and efficient manner.

Investment Philosophy

Windham’s investment philosophy is based on the belief that active risk management and disciplined portfolio construction, supported by a profound understanding of asset class behaviour throughout various market environments, will yield higher returns over the long-term. Windham uses a value-oriented approach and continually reallocates to income-producing assets that offer higher yields with lower volatility.

Process

Windham seeks to understand the level and duration of risks that drive long-term returns. They take a forward-looking view of risk, optimising the assets held for the present conditions by dynamically adjusting to changes in market conditions.

Windham uses two proprietary risk measures on a daily basis to identify these changes:

  • Financial turbulence indicates unusual relationships between asset class prices and detects extreme price movements. For example, in April-June 2013, Windham noted that property markets became less correlated with equity markets and more with interest rates. Volatility was moderate. Windham increased its defensive exposures by 23% as a response.
  • Systemic risk indicates the market's vulnerability to shocks or negative news. It seeks to identify when there may be a greater risk of a broad selloff, and can also indicate when risk is likely to be better rewarded. For example, in late 2012, despite the fiscal cliff and issues in Europe and the Middle East, Windham found that the market correlations were consistent with the past and there was low volatility and systemic risk. As a result, Windham increased exposure to growth assets.

Portfolio Fit

  • A diversifier that should improve your portfolios' overall risk-adjusted returns.
  • Likely to complement both traditional asset allocation as well as risk parity investing as the Windham approach reacts to changes in volatility or correlations across asset classes.

Currency

Generally, between 95-105% of the Portfolio's assets will be hedged into Australian dollars.

Management Fees

Available upon request.

Vehicle

Mandate

Investment Manager

Windham Capital Management, LLC

Portfolio Team

Windham’s investment team has over 75 years of combined experience and is lead by Mark Kritzman, Chief Investment Officer, who is a founding partner of State Street Associates and a senior lecturer at the MIT Sloan School of Management.

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