An expert view from Natixis Asset Management: Risk parity, an answer to low interest rates

Over the past 30 years, bond yields were able to offset all or part of declines witnessed on the equity markets. But in the current climate where sovereigns with the highest ratings are issuing close to zero or even at negative rates and where an increasing proportion of the European bond market carries negative yields, bonds’ role as a buffer is no longer really viable.

The necessary increase in performance diversification

A smarter portfolio diversification than a simple allocation between bonds and equities is required to provide investors with better sources of yield, while maintaining a defensive risk profile, as a result of different levels of correlation between asset classes. A sound diversification approach not only requires access to a wide range of assets, but also means factoring in the risk involved in each of them as well as changes in correlation between them.

An alternative to traditional balanced investments

Our risk parity portfolio diversification strategy is particularly suited to the current level of uncertainty on market returns, where it is difficult to accurately estimate future returns and correlations. Our approach provides a solid risk framework and involves continuous adaptation of the portfolio’s allocation, which limits the impact of a decline in any given asset class on the portfolio as a whole. At a time when it is difficult to generate decent returns on allocations limited to bonds or structured as traditional balanced funds, this approach can offer investors an attractive alternative.

Read the focus “Considering the risk parity approach”
Consult the Natixis Global Risk Parity product profile
Read the Product Flash: “Natixis Global Risk Parity: allocating risk and diversifying performance drivers in a winning strategy over past three years!”

Natixis Asset Management – Asset management company regulated by AMF under n° GP 90-009 – Limited Liability Company, Share Capital €50 434 604.76 – RCS Number 329 450 738 Paris - Registered Office: 21 quai d’Austerlitz, 75013 Paris.