Risk Management

Through our research and our process driven approach we focus our product design on client-centric risk measures using loss-based measures instead of mathematical or statistical terms.

Our extensive experience in measuring and understanding the risk in a portfolio is central to our risk management capabilities. A five-step risk management approach overlays 18 AM’s entire investment process.

Identify

Through back-testing and live results the risk experience is identified, answering risk questions, such as:

“What risks are generally associated with this style?”

“What kind of markets does this style do well/poorly in?”

“What fundamental factors are associated with good/poor performance?”

Quantify

18 AM prefers risk measures that are intuitive and understandable. Our risk measures are client-centric, quantifying the loss experience. For example, we favour using risk statistics such as Biggest Relative Drawdown, providing clients with an expectation of how far behind the benchmark a style’s historical performance has been.

Strategize

Risk comes into a portfolio for two main reasons: (1) by investing in a stock at the wrong time; or (2) by investing in a style when it is out of favour. Therefore, we assess both of these risks before investing in a stock or a style. 

Implement

Our risk strategy is implemented in several ways: (1) adhering to sell disciplines built into each investment model; (2) identifying areas of concentrated risk exposures through analysis of portfolio risk decomposition and; and (3) where applicable, our risk-based style allocation process identifies styles that are most risk-appropriate for the current market conditions.

Monitor

We monitor holdings to look for risks as they are developing. We monitor the level of risk experienced by the portfolio to see if it lies within historically expected levels. We monitor the level of risk in each style to determine its attractiveness for current use.