The recent market volatility in October and November is a timely reminder of the importance of having an allocation to decorrelated trading strategies in a broader asset allocation framework. In this paper we discuss some of the hedge fund strategies that fall into this classification and to which we currently allocate. There are other strategies in this space which we do not currently allocate to for top down reasons. We also assess how these strategies can help mitigate risk in times of stress and why we believe the opportunity set looks promising going forward.
We first introduce the different strategies. While each of these strategies may be different in terms of products traded, investment style and risk management, the commonality between them is the fact that a more volatile market environment makes for a more interesting opportunity set.