An All-Weather Approach: How IMCO is maintaining long-term portfolio discipline amid short-term volatility

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Featured Experts / An All-Weather Approach: How IMCO is maintaining long-term portfolio discipline amid short-term volatility

In a challenging and rapidly evolving investing climate like the one the world faces today, the way portfolios are built plays an critical role in driving returns. We spoke with Patrick De Roy, Senior Managing Director of Total Portfolio and Capital Markets, to understand how investors can build diversified, well-balanced portfolios for the current environment.

How are you thinking about portfolio design given the COVID-19 pandemic and the current period of extreme volatility?

It’s clear that diversification is key right now. This volatile period hasn’t changed the way we start discussions with clients or how we’re working with them to design their portfolios, but it’s certainly reinforcing that message in a big way.

One way we’re helping clients diversify is through our products. For example, we separated government fixed income strategies from the credit strategy. Typically, you see these asset classes together in a combined bond portfolio. To us, that’s not optimal. So instead we are offering a fully dedicated credit product and a fully dedicated government fixed income offering in a more “purified” way to clients diversify more effectively.

We’re seeking to build an “all-weather” portfolio at IMCO. We know that the macro environment will be challenging from time to time, that recessions will happen, and so on, but our portfolios are built to withstand those cycles while staying true to our clients’ risk appetite and long-term objectives.

Rebalancing client portfolios in an environment like this one takes significant discipline. What is your approach?

First of all, we’re focused on maintaining liquidity, and our decision to separate government fixed income from the rest of credit was driven in part by that focus. That’s because government fixed income really acts as the liquidity pool that we use for rebalancing.

We believe that rebalancing overall is extremely important. Every month, we rebalance to our clients’ agreed target because we have a long-term investment horizon, as I mentioned. In a down market like this one, it might feel like trying to catch a falling knife at times, but we think in decades, not weeks or months. We strongly believe that over the long run, this creates value for our clients.

We believe that allocation should actually be the job of the investment management company, not the client.

Can this approach to rebalancing constrain your ability to seize on emerging opportunities you see in the market?

Not at all – we’re always looking for value-add opportunities across every asset class and have access to the liquidity required to pursue these potential opportunities. In a market like this one, with lots of noise and new distractions on an almost hourly basis, our clients rightly ask us many questions about this topic. While our baseline is to rebalance at month-end, if we decide to deviate from that, it’s because we’ve got an active view on a particular asset class. Importantly, from a governance standpoint, my team also has clear accountability for every active decision we make at the total portfolio level.

IMCO has streamlined the number of investment solutions to clients. What drove that decision?

We decided to offer fewer strategies, but to ensure that they have compelling breadth and that they don’t place a heavy implementation burden on our clients.

That’s different from the traditional approach. Let’s say you’ve got separate large cap and small cap equities products. Typically, the client then has to decide how much money to allocate to each. We believe that that allocation should actually be the job of the investment management company, not the client. This allows clients to leverage our full investing expertise, and I think it has resonated very well with them.

The IMCO team individually has an extremely impressive track record of success, but because we’re a relatively new organization, we don’t have a collective track record just yet. That will of course change over time, but right now we’re being humble, working hard, leveraging our past expertise and building for the future

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