Strategic Risk Management

Preface

By Sandy Rattray

One of our core beliefs at Man Group is that risk management of portfolios is just as important as alpha generation. Based on a number of articles we’ve published over the past five years, this book is derived from some of the key areas of risk management where we have had something to add and the practical experience we have as fund managers. The motivation for writing this book often came from questions asked by our clients that we thought would be interesting to others, and sometimes from specific problems that we were thinking about ourselves.

In Seeking Crisis Alpha (Chapter 1), we write about a theme that is close to our hearts: the ability of time series momentum to produce strong returns in weak market environments. We challenge the consensus view that this feature is limited to generating alpha in weak equity markets by finding very similar results in bond markets. We also show that time series momentum has some similar features to a long (put and call) options strategy. Aside from our momentum funds, we have directly used the protective feature of momentum in our long-only multi-asset programs. The chapter was written to respond to the many comments we received: that futures momentum could only protect against equity market drawdowns. Even with a 25-year history for our flagship trend fund, we needed to generate additional historical returns going back to the 1960s to test for protection against bond market selloffs.

We develop this theme ...