A product designed to bring some unique attributes to the crowded absolute return global macro space
With diversification and risk management top of investors’ wish lists when it comes to alternatives, step forward the H2O MultiReturns Fund.
H2O Asset Management is an independent boutique backed by Natixis Global Asset Management and has a 14-year track record in absolute return strategies.
Jeremy Touboul, who works on the H2O MultiReturns Fund alongside group co-founder Vincent Chailley, says the product is designed to bring some unique attributes to the crowded absolute return global macro space.
One element is an income: if investors select the distribution share class, they are entitled to distributions from the underlying equities and bonds.
A second is the volatility bracket used: rather than targeting a set level like many peers, the H2O team runs the fund with volatility between five per cent and 10 per cent.
“Where there are shocks in the market and we see waves of forced sellers, this flexibility allows us to increase our volatility in order to take advantage of conditions,” says Touboul. “When conditions are quieter, volatility will be lower and using the flexibility afforded by the five to 10 per cent bracket allows us to move with the market.”
At the core, H2O MultiReturns invests across equities, bonds and currencies on a global level, seeking to beat one-month sterling Libor by four per cent per annum over a three-year time horizon.
Touboul says the fund can serve as a good diversifier in a global portfolio, with a low correlation to various asset classes and its peer group.
Looking at figures from the fund’s first year after launch in October 2013, it had a negative correlation with gilts and respective figures of just 0.25 and 0.22 with equities and high yield.
Lack of correlation with the peer group comes from the very different process in place, which Touboul says combines short- and long-term thinking as well as a range of directional, relative value and thematic calls.
“This is a global macro product so the initial stage is detailed economic analysis and discussion across the team to provide what we call our views sheet,” says Touboul. “We look at things differently from many rivals, with separate teams analysing valuations, fundamentals and flows. All of this information is fed into Bruno Crastes and Vincent Chailley who decide how best to express these views across our investment universe.”
A good way to understand the process is to imagine a pyramid with four asset class channels: government bonds, credit, currencies and equities at the top.