Academic papers have been written on sequencing risk, which is really just a fancy word for taking a massive hit (most likely from the equity market) at the worst possible time – ie, close to or post-retirement.
Within an asset allocation framework, for those investors able to receive advice, the solutions are:
- hope for brilliant market timing from wealth manager
- use signals to scientifically do the above (i.e. move between cash and equity)
- buy put options
- buy alternatives (especially CTAs).
The wealth management community has opted for the latter.
Atlantic House doesn’t have a view on this, other than it’s the most practical thing for most people to do.
Investors seeking to deal with sequencing risk, in the real sense of the term, could also look at the Atlantic House approach which provides a practical solution to these clients as an alternate way of gaining equity exposure.
While we wouldn’t argue that our Defined Returns Fund deals with sequencing risk in the real sense of the term, we would argue it provides a practical solution to these clients as an alternate way of gaining equity exposure.
Time cost and % cost of drawdowns – outworking of sequencing risk
The Atlantic House Defined Returns Fund aims to deliver its predictable outcomes by investing in derivatives linked to large, liquid equity indices. The Fund aims to deliver predictable, long-term annualised returns of 7%–8% in all but the bleakest market conditions.
Shown below is the time-cost in months and the percentage cost to portfolios.
Back to “sequencing risk”
The following chart shows equity drawdowns on the S&P over 25% since 1970 but we know all this already. However, the chart on the right shows how long these bear markets take to play out. They’re surprisingly long and supply investors with long periods on angst. Do I sell or stick?
The next chart looks at how long markets take to recover (in price terms) to the post crash high. Markets do recover from their lows before the rally loses steam. On average it takes 63 months to go nowhere – barring some dividends.
The light blue and yellow bars are the levels that matter to us, if you recall from the earlier chart. So while we’re not dealing with sequencing risk in the exact academic sense of the term, in practical terms we’re offering investors a solution for part of their equity exposure.
The Fund will do one of these three things:
Andrew Lakeman
Co-Founder & Head of Australia Atlantic House
Sydney 0439 090 137
andrew.lakeman@atlantichousegroup.com
To learn more about the fund, download the eBook: https://www.chstrategies.com.au/wp-content/uploads/2023/08/AHG-eBook-202308.pdf
About Atlantic House – Australia
Andy Lakeman moved to Sydney in 2014 as his Australian-born wife wanted to move home. For five years he managed the distribution team and attended Board meetings with regular trips back to London.
Covid 19 put a stop to the travel and Atlantic House revisited the idea of entering the Australian market. Early conversations with local consultants confirmed our thoughts that Australia, like UK, was a suitable market. Particularly, Baby Boomers with investable assets that would consider genuine retirement solutions to deal with sequencing risk and market volatility.
About Atlantic House – UK
Atlantic House Group Limited was set up to offer clients an independent solution for accessing institutional structured investments. Using a wide range of investment banking counterparties, investments were delivered via MTNs, SPVs or Funds and the investment solutions were as simple or complicated as the mandate / client required.
Overall FUM is $A 4.28 billion.
The Fund Management entity (Atlantic House) was set up in 2012 due to client demand. Platform access and time pressures meant a typical client wanted a managed solution in a fund wrapper for one of the most popular and successful strategies (The Autocallable).
As the business has grown, Atlantic House Group (AHG) have added to the Fund range and taken mandates according to client need, not based on a marketing strategy.
In recent years AHG helped clients navigate the QIS (Quantitative Investment Strategies) world as well as invest in these strategies with some of their funds. The skill set we’ve developed in assessing the merit of these strategies as well as ability to execute and monitor them has led to clients looking to use AHG to run mandates for institutional clients.
Disclaimer: The material contained in this communication is general information only and has been prepared by Mantis Funds Pty Ltd (“Mantis”) a Corporate Authorised Representative of Mantis Financial Group (“MFG”), AFSL 492452. It is not intended to take the place of professional advice and you should not act on any information made in this communication without first consulting your investment advisor in order to ascertain whether the information is appropriate, having regard to your investment objectives, financial situation and particular needs. Nothing in this communication shall be construed as a solicitation to buy or sell a security or to engage in or refrain from engaging in any transaction. Mantis believes that the information contained herein is correct at the time of compilation. However, Mantis provides no representation or warranty that it is accurate, complete, reliable or up to date, nor does Mantis, or MFG accept any obligation to correct or update the opinions (if any) in it. The opinions (if any) expressed are subject to change without notice. Mantis and MFG do not accept any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of the material contained in this communication. This communication may refer to the past performance of a person, entity or financial product. Past performance is not a reliable indicator of future performance. Investors should obtain the relevant product disclosure statement and consider it before making any decision to invest.