Spotlight on Dimitri Curtil, Global Head of Multi-Asset Solutions, Newton Investment Management
Global Thought Leader Spotlight
Dimitri Curtil, Global Head of Multi-Asset Solutions, Newton Investment Management
In my role as Global Head of Multi-Asset Solutions at Newton Investment Management, I oversee the team of portfolio managers and researchers responsible for the firm’s systematic multi-asset strategies, and I also lead the development and enhancement of the research underpinning the strategies.
Can relative-value strategies future-proof your portfolio?
The market environment following 2008’s global financial crisis was characterised by an abundance of liquidity, effectively zero cash rates and negative correlation between stocks and bonds. With investors sensing that the central-bank ‘put’ was firmly in place to underpin markets, risky assets moved inexorably higher. Waves of central-bank quantitative easing (QE) created an inherent fragility in financial markets, with the abundant liquidity driving asset prices higher and rendering relative-value strategies less effective.
In 2020, the Covid-19 pandemic created such turbulence that inflation surged. Cash rates rose to more than 5%, eroding risk premiums and setting a high hurdle for risky assets. Traditional hedges such as government bonds did not provide diversification.
New regime, new challenges
This drastic change created new challenges for client portfolios. Not only did diversification diminish as correlations between asset classes became less negative or outright positive, but inflation became a risk, particularly given its uncertain trajectory. Moreover, the shift into private-market strategies during the QE era created an unintentional bias towards illiquid assets. Furthermore, high cash rates mean the net present value of long-term cash flows is now lower than during the period of QE.
Is your portfolio prepared for this new regime? Questions and uncertainty abound.
Will the same portfolio succeed in this very different market environment?
How should we navigate this new, less synchronous market regime?
How should portfolios adjust to compete with a high cash rate and lower risk premiums?
Has your portfolio compensated for the fact that bonds are now less diversifying?
One attractive solution is to use market-neutral, relative-value strategies, whose long/short structure seeks to overcome the high cash hurdle through derivative implementation and can offer a return stream that is uncorrelated with directional, beta strategies. These strategies are also ideally placed to exploit the richer opportunity set from the post-Covid regime of greater dispersion and heightened volatility, and are less reliant on the direction of asset-class prices owing to their flexible, long/short nature. Furthermore, a set of measures informing long/short decisions – including carry, value, and macro fundamentals – can quickly adapt to changing conditions and provide diversification.
Alpha diversification opportunities
Greater dispersion across asset classes can provide attractive alpha opportunities for both long and short positions. In our view, alpha diversification is more reliable across various macro regimes than beta diversification, making relative-value decisions more resilient to macro shocks. Of course, they are not immune to idiosyncratic shocks within an asset class, but it is our expectation that any such shocks are likely to be contained and not affect relative-value opportunities in other asset classes.
Another advantage of relative-value strategies is that they can be implemented in a cash-efficient manner through highly liquid derivatives that are listed and traded on exchanges. Long and short exposures can also be achieved in synthetic form through a total-return swap. These relative-value strategies also allow investors to ‘port’ the alpha streams on top of the cash used to collateralise the derivative exposures, thereby benefiting from higher cash rates.
Recipe for a well-constructed portfolio
In summary, markets and trading instruments have evolved considerably in recent years, offering enhanced liquidity, greater capital efficiency and higher capacity. Diversified relative-value alpha streams, implemented through derivatives, can help investors adapt to this new market regime by providing attractive and scalable risk-adjusted return potential with market-neutral implementation. Instead of viewing higher cash rates as a hurdle, harnessing strategies that work with cash rather than against cash makes sense, particularly in the context of a new regime where cash rates are more elevated. Deploying the right instruments in the right context with the right intent is, in fact, a recipe for a well-constructed portfolio which we believe can weather this new, more challenging market regime.
Dimitri Curtil, Global Head of Multi-Asset Solutions, Newton Investment Management
Dimitri is Newton’s global head of multi-asset solutions. In addition to overseeing the team of portfolio managers and researchers responsible for the firm’s systematic multi-asset strategies, Dimitri also leads the development and enhancement of the research underpinning the firm’s multi-asset strategies. Dimitri’s specific areas of research include absolute-return and total-return strategies as well as risk parity, alternative risk premia and tail-risk hedging solutions.
Dimitri joined Newton in September 2021, following the integration of Mellon Investments Corporation’s equity and multi-asset capabilities into the Newton Investment Management Group. Before joining Newton, Dimitri was chief investment officer and head of multi-asset strategies, head of asset allocation research, a senior research analyst and research analyst at Mellon Investments Corporation and Mellon Capital (both BNY group companies).
Prior to joining BNY, he worked as a computational systems engineer at Lawrence Berkeley National Lab. Dimitri has an MS in Computer Science from Imperial College in London and an MSc in Mechanical Engineering from Zurich Federal Institute of Technology.
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Important information
Issued by Newton Investment Management Ltd. These opinions should not be construed as investment or other advice and are subject to change. This document is for information purposes only. Any reference to a specific security, country or sector should not be construed as a recommendation to buy or sell investments in those securities, countries or sectors. Newton Investment Management Limited, The Bank of New York Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Registered in England No. 01371973. Newton Investment Management Limited is authorised and regulated by the Financial Conduct Authority, 12 Endeavour Square, London, E20 1JN and is a subsidiary of The Bank of New York Mellon Corporation. ‘Newton’ and/or ‘Newton Investment Management’ is a corporate brand which refers to the following group of affiliated companies: Newton Investment Management Limited (NIM), Newton Investment Management North America LLC (NIMNA) and Newton Investment Management Japan Limited (NIMJ). NIMNA was established in 2021 and NIMJ was established in March 2023. This material is for Australian wholesale clients only and is not intended for distribution to, nor should it be relied upon by, retail clients. This information has not been prepared to take into account the investment objectives, financial objectives or particular needs of any particular person. Before making an investment decision you should carefully consider, with or without the assistance of a financial adviser, whether such an investment strategy is appropriate in light of your particular investment needs, objectives and financial circumstances. Newton Investment Management Limited is exempt from the requirement to hold an Australian financial services licence in respect of the financial services it provides to wholesale clients in Australia and is authorised and regulated by the Financial Conduct Authority of the UK under UK laws, which differ from Australian laws. Newton Investment Management Limited (Newton) is authorised and regulated in the UK by the Financial Conduct Authority (FCA), 12 Endeavour Square, London, E20 1JN. Newton is providing financial services to wholesale clients in Australia in reliance on ASIC Corporations (Repeal and Transitional) Instrument 2016/396, a copy of which is on the website of the Australian Securities and Investments Commission, www. asic.gov.au. The instrument exempts entities that are authorised and regulated in the UK by the FCA, such as Newton, from the need to hold an Australian financial services license under the Corporations Act 2001 for certain financial services provided to Australian wholesale clients on certain conditions. Financial services provided by Newton are regulated by the FCA under the laws and regulatory requirements of the United Kingdom, which are different to the laws applying in Australia.