The Goldman Sachs Wealthbuilder Multi-Asset Growth Portfolio has hedged its interest rate risk and recently stripped down its commodities exposure.
The $50m (£32.5m) fund is a fettered fund of funds that usually has about 80 per cent exposure to active strategies and the remainder in passives and derivatives.
Goldman Sachs decided on the Luxembourg-based Sicav approach because it wanted to sell the range across Europe and Asia under the Ucits brand. It has no plans to launch UK-domiciled versions of the funds and it does not have an Oeic platform.
Across the firm’s three multi-asset funds, which are aimed at Distribution Technology risk ratings of four to six, assets total $182m.
The funds are risk targeted, with the growth fund – the riskiest – aiming to keep its long-term volatility between 11 and 12 per cent.
Co-chief investment officer Neill Nuttall says: “Once you go above that volatility band you have to concentrate your risk too much in things like equities.”
Nuttall says the fund’s strategic allocation is set for a full market cycle, although the management team overlay a tactical allocation to make the most of shorter-term opportunities.
Its notional benchmark is a composite consisting of 65 per cent MSCI World and 35 per cent Barclays Global Aggregate Bond although Nuttall says this has no influence on investment decisions.
“We’re looking to maximise risk-adjusted returns,” he says.
Goldman Sachs Asset Management would not release its performance data or top 10 holdings. Its sub-year track record is not enough to provide accurate disclosure, the firm says.
According to FE Analytics, the fund has returned 0.7 per cent since its 30 June inception, with it largest drawdown a 7.64 per cent drop between September and mid-October.
Its benchmark lost 0.36 per cent from 30 June till 18 February.
The fund has “moderated” its commodities exposure from 4 per cent of the portfolio to 2 per cent, Nuttall says.
“We see the oversupply in commodities and think the readjustment will take a while to come through.”
A long-held overweight position to the US is starting to be unwound as the fund moves into the much cheaper Europe and Japanese markets.
The boost from QE in both is another tailwind encouraging Goldman Sachs AM, he adds.
“QE is an important driver, but we also think sentiment in Europe has been excessively negative and now you’re seeing data that’s better in absolute terms, but also better than expectations.
“To go from recession to stagnation is a positive event.”
The fund is light on developed sovereign bonds because of the extreme valuations. It is also hedging interest rate risk as a “quasi-insurance policy” through options on eurodollar futures. Eurodollar are dollar-denominated deposits held outside the US.
The fund has moved to a neutral position in emerging market debt and equity; it used to be underweight. The stronger dollar is likely to be a headwind for the group overall, although the fund is allocating to energy-importing countries that are sheltered from the global currency war.
India especially is in the team’s sights as the fall in oil prices eases inflation and gives consumers a boost. It uses futures on the country’s CNX Nifty 50 stockmarket index.
“India is domestic facing with positive structural reform on the agenda,” Nuttall says. “It’s also an energy importer and considerably less exposed to the competitive devaluations seen elsewhere.”
The Indian market jumped 32.6 per cent last year, driven by prime minister Narendra Modi’s May election. Nuttall admits the market may have got ahead of itself in the short-term, but the long-term prospects are still attractive.
Countries such as South Korea have been “shocked” by the currency swings, he says.
Its exports are being squeezed by the devaluation of the Japanese yen caused by the nation’s massive QE programme that has been progressively expanded since 2011.
Most people consider a portfolio with a 60 per cent weighting to equities and 40 per cent in bonds to be relatively well diversified, but that is not the case, he says.
“95 per cent of its risk is driven by its equity holdings, which in times like now means being overweight equities is a good place to be. But when markets turn and you get into a situation like 2008, those markets can sell off about 35 per cent.”
Despite that, Nuttall says the fund has been tactically overweight equities since launch although it is now becoming more focused on where it is investing.