Big trends – big return potential
The risk profile of portfolios, including private equity portfolios, is often determined based on traditional risk measures such as volatility and correlations.
However, history indicates that while traditional risk measures might be useful indicators in “good times”, they are less reliable in times of market turbulences, which is when downside protection is needed most.
Consequently, the traditional approach to portfolio construction exposes investors to certain blind spots. To avoid these, investors should develop a deep understanding of the exposure of a portfolio to long-term fundamental trends (“megatrends”) and the fundamental level of robustness and ‘anti-fragility’ of a portfolio.
Nils Rode, Co-Head of Investment Management at Adveq, was asked to contribute an article in the new Financial Year Book Germany/EU 2015. Within this article, Mr. Rode shares his insights into how the risk/return profile and the long-term diversification of the portfolio can be improved by applying megatrend exposure, robustness and anti-fragility as additional dimensions for portfolio construction and investment selection.
The full article can be downloaded in PDF format here.