The Atlas Global Downside Protected (GDP) strategy is a global equity strategy benchmarked to the MSCI All-Country World Index (ACWI). GDP is designed to reduce the risk of large loss in sustained market declines, while still striving to achieve gains when stock markets are rising. The strategy does this by avoiding segments of global stock markets that have heightened risk profile; staying fully invested in “good markets” (using cash sparingly); and opportunistically managing foreign exchange rate risk. As with the other Atlas strategies, GDP uses a consistent, systematic approach with a foundation in academic and Atlas proprietary research.
1) Invest Globally:
-Diversification across geographic markets provides the opportunity to benefit when there are attractive markets outside the home country.
2) Create alpha from beta management:
-Return of any equity market index (the equity beta) can be achieved dynamically and cheaply via ETFs or futures
-Additional return (alpha) can be generated from systematic beta management – informed choices about which stock markets to own-Generating alpha from beta management is often under-appreciated and under-utilized by investors
3)Take risk only when rewarded:
-Determine “bad neighborhoods”: Examine valuation, momentum, fundamentals, sentiment, risk and currency impacts for each market
-"Water the flowers, not weeds”: Spread the risk budget to good neighborhoods only
-“Correlation matters”: When too many neighborhoods turn bad, we will move assets to short-term fixed income to avoid losses for investors.
The firm utilizes academic research (Fama French, Carhart, and others) as well as in-house research, which is ongoing. Atlas has been running enhanced equity index strategies since 2003. Currently, the firm runs seven equity strategies. Proprietary models have been developed in Matlab. The GDP strategy has been back-tested to 2001. The test utilizes the returns of market indices (as provided by Bloomberg) for the performance of each sector/geography.
1. Universe Selection: Forty-eight segments of global stock market, four tiers of weighting, based on market capitalization, equal weight within tiers
2. Neighborhood Screen: Countries/sectors that exhibit bad neighborhood characteristics (bad valuation or a downward price trend in local currency) are excluded
3. Valuation Assessment: Remaining countries/sectors are evaluated based on economic fundamentals, risk, expected return and historical valuation metrics
4. Portfolio Weighting: Remaining countries/sectors are re-weighted based on risk and valuation outlook. If too few “good neighborhoods” some allocation to short-term fixed income.
5. Currency Management: Major currency exposures are aggregated and evaluated. The currency risk is hedged if value and trend indicate hedging desirable.
Portfolios are rebalanced monthly. Quantitative screens are run based on value and momentum. Holdings are sold when value and momentum characteristics are undesirable.