Risk Regime Investing – Investment goal
You want your assets to be broadly invested and to earn reasonable returns in good times. At the same time, you expect your assets to go into protection mode when a storm is brewing. Our answer to this central need of clients is Risk Regime Investing.
How it works
PARSUMO Capital helps you to reliably reach your investment goal. We detect fair weather in the capital markets. During such periods, it is usually worthwhile investing in riskier assets, such as equities and commodities, because the risk that is taken is rewarded with an appropriate return. We can also identify stormy periods. Risk is insufficiently rewarded during such phases. We then place your assets into protection mode. This means that your exposure to equities, commodities and real estate is reduced in favor of liquidity and top-rated bonds.
How do we detect what state the markets are in?
Our two proprietary risk indicators provide us with a reliable picture of capital market conditions. When both indicators show elevated values, we place your assets into protection mode. When the values are low, by contrast, we expect the market conditions and risk-return ratio to be favorable. In this case, we position your portfolio offensively.
Systemic Risk Index
We record the stock markets’ movements every day. The Systemic Risk Index (SRI) detects when market participants focus on just a few elements. We call these markets «compact». Negative shocks can be difficult to absorb and bad news can spark a wildfire. When the indicator shows a low value, this is indicative of a broadly based market. Investors focus on various different criteria and any shock during such phases is normally limited to the sector concerned.
We also follow market events daily to calculate the Turbulence Index (TI). The focus now, however, is on various different asset classes. We observe how the prices and the correlation of the asset classes behave over time. Whenever erratic price movements and unusual correlations occur, we talk of turbulence. In such troubled phases, we position the portfolios to be more defensive in order to protect them from the turbulence.
Assets managed under the Risk Regime Investing approach exhibit above-average risk-return characteristics. The assets grow during the good years and are protected at times of crises. In this way, you safely achieve your investment goal.