All our views are expressed with a  % of a global risk budget which is deployed taking in consideration the volatility of each market exposure prior to size positions.

 

The individual risk budget consumption is represented by the red bullets in the exposure charts of the Currency Overlay Program (COP) and Global Tactical (GT)  portfolios. Two exposures with different nominals but identical levels of volatility are deemed to have a similar standalone risk.

 

This position scaling method is a derivation of "risk parity" in the sense that it substitutes nominal exposure targeting (such as the typical 40% bonds, 60% stocks) with risk adjusted (volatility based) positioning. However, and unlike the “risk parity” general practice, we do not apply additional leverage except in the Global Tactical (GT) model portfolio and only to a small extent (<50%). The FX and Gold exposure may not exceed 100% of the portfolio size in nominal terms, either in the COP (currency overlay program) model portfolio or in the GT (Global Tactical) model portfolio, even if the FX risk is deployed on “low volatility” FX pairs. The different model portfolios’ VAR limits apply at all times.

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