Our Risk Regime Investing (RRI) approach uses proprietary indicators to assess prospective risks. Risk Regime Investing thus provides protection against significant drawdowns, yet participates in sustainable gains when conditions are calm and risk-return ratios favorable.
Proprietary model
Our RRI approach enables us to learn from the past, prepare our portfolios for the future, and make sure they are ideally positioned for the present. Are the markets fragile? Are they resistant? Under the current market conditions, how can we invest in a way that protects us from setbacks but still enables us to take advantage of opportunities?
For investors, Risk Regime Investing means an effective approach to risk management and stability without having to miss out on recurring opportunities. We call this the foundation for sustainable performance.
These opportunities stem primarily from tactical asset allocation – stock selection is of only secondary importance. We avoid security-specific risks and focus on selecting the right asset classes and markets. We call this the principle of simplicity.
Last but not least, we manage our portfolios in an extremely cost-conscious manner because we know that costs are nothing more than a serious handicap. We therefore represent your interests, which increases the performance we generate for you. We call this independence.
Unique selling proposition
We distinguish between six market regimes In addition to traditional assessments of the markets and their performance, PARSUMO Capital uses proprietary indicators that capture specific market risks:
- Systemic Risk Index
- Turbulence Index – the risk of increased market turbulence
- Investor behavior indicators
We are aware of the current market state, analyze its vulnerabilities and fragility, and position ourselves accordingly based on stable empirical values.
Risk budget and risk scaling
Risk scaling helps to manage the level of risk assumed irrespective of current market turbulence and fragility. By applying very distinctive risk/return profiles for different market conditions, latent market risks can be avoided, while still identifying and tapping into market opportunities at an early stage. We refer to our investment philosophy as Risk Regime Investing. At times the markets can be extremely robust, while at other times they are exceptionally fragile. These changing market conditions give rise to various expected returns, risks and correlations. That is why we differentiate between six market regimes featuring distinctive profiles and market expectations. This enables us to adjust our risk budget in line with the market expectations for the coming one to three months. This Risk Regime Investing is our investment philosophy for managing our allocations.
Proprietary indicators
Our two proprietary risk indicators are extremely valuable when it comes to managing assets.
Systemic Risk Index – SRI
The Systemic Risk Index measures the degree of standardization across the markets and how closely they are connected to one another. This enables us to assess how fragile they are.
- If markets are closely linked with each other, they are far more fragile and susceptible to bad news than if they are only loosely connected.
- Bad news (shocks) impacts closely interconnected markets more severely and within a shorter space of time – this is often the case across the entire capital market.
Key empirical features and functions of systemic risk include:
- Systemic risk rises prior to a significant market downturn.
- Systemic risk can be a preliminary indication of market turbulence.
Turbulence Index – TI
The Turbulence Index looks at returns and measures unusual events and developments in comparison to their usual historic patterns. This includes:
- Extreme price developments
- The decoupling of investments that are usually correlated
- The convergence of investments that are usually uncorrelated
Key empirical features and functions of financial market turbulence include:
- The risk/return ratio is lower during turbulent periods.
- Even though turbulence can occur suddenly, it tends to be persistent.
