Rathbone Unit Trust Management head of multi-asset investments David Coombs is diversifying his portfolios through commodity trading advisers as it is difficult to find asset classes that are not correlated to equities.
CTAs are quantitative investment strategies, usually futures-based, managed by mathematical-based computer programs rather than stockpicking by a fund manager. Coombs says CTAs are not focused solely on commodities and there are many different types trading in bonds, currencies, equities, indices and sectors. They take long and short positions and the frequency of trading varies, with some CVAs trading once a day while others trade thousands of times a day.
Coombs has introduced a 3 per cent weighing in a CTA called Aspect Capital diversified trends in both his strategic growth and total return funds.
He intends to buy another CTA in his strategic growth fund, bringing the weighting up to 5 per cent. He says: “CTAs can be volatile and a lot of people running low-risk strategies say they are too volatile but I say the benefit of non-correlation is important. It reduces risk – volatility is too blunt a tool to measure risk.
“To mitigate volatility, CTAs reduce their exposure when volatility rises. When they see volatility, they see the trend is starting to break and reduce exposure.”