BT-owned multi-manager Advance Asset Management has instructed funds managers to exploit the wide-ranging opportunities available in a global market dominated by shorttermism. Head of investment solutions, Patrick Farrell, said this strategy would enable Advance to exploit the “risk-on, risk-off trade” playing out in markets worldwide. These large, short-term market swings were driven as much by sentiment and “noise” as fundamental valuations, Farrell said. “Capital markets forecasts are tormented by this. Fundamentals aren’t driving it. There’s lots of money washing around the system that is trying to make a quick buck and then get out.”

These observations, garnered from a recent global research trip, steeled the multi-manager’s resolve to broaden its mandates with underlying managers and not constrain them to sectors within asset classes. Head of strategy and research, Felix Stephen, said absolute return strategies were also suited to the uncertain environment. Last month, Advance seeded an alternatives product – built from equal exposures to hedge fund strategies and cheaper exchangetraded funds – with $400 million from its multi-sector funds. “It’s become even more important to have flexibility because the markets have got strangely correlated. Even within the sectors it becomes hard for managers to generate alpha, so they need flexibility to look for value and arbitrage opportunities,” Stephens said. Soon Advance would begin using a new proprietary risk management system built by quantitative research manager Sidney Chong, who previously ran BT’s fixed income and alternatives multi-manager products.

The system would better enable the multi-manager to gather analytics – such as detailed information about markets and manager holdings, the various tilts being taken by managers – and to arrive at aggregate risk exposures, Stephen said. “At an aggregate level, we look at risk and decide if we are comfortable with our exposures. We don’t want to second-guess what the managers are doing. They’re at the coalface and make the tactical decisions.” He said it was difficult to find funds managers that could outperform by running lessconstrained mandates. “Not many people have recognised that there has been a paradigm shift in the way the markets are operating. You can see a clear risk-on, risk-off regime now and markets get highly correlated.” But however headstrong Advance’s underlying managers became in their pursuit of shortterm opportunities, Farrell said the multi-manager would not allow its medium- to long-term view become clouded and “caught up in the noise”. Stephen said the leverageinduced bull market and subsequent financial crisis had been the most extraordinary period in his almost 40 years in treasury and portfolio management roles.