Macquarie Allegiance Capital has a strong risk management culture. For information on the risk management of the relative return investment products click here.
Macquarie Allegiance Capital seeks to enhance client portfolio returns using a risk-controlled investment process that incorporates both quantitative and qualitative analysis. Our process is driven by the Investment Committee that meets at least weekly and includes our Chief Investment Officer, Sector Managers and Portfolio Managers from Macquarie's Fixed Income and Currency team.
The Investment Committee's decision-making process is formalized through the use of a scorecard approach which incorporates both quantitative and qualitative factors. In its weekly meetings, the Committee starts with a top-down assessment of global and domestic economic and financial market conditions with input from Macquarie's Economics team. The Committee collectively assigns 'scores' to the three macro areas of the investment process: economics; yield curve; and duration. Each of the Sector Managers then presents their assessment of their particular sector and recommends a score for that sector. The scores across each macro decision and each sector help determine the sector allocations in client portfolios.
Sector Managers are then responsible for bottom-up security selection. Their objective is to provide a well-diversified range of securities that reflect the top-down macro views of the Investment Committee and adds value to the overall portfolio.
This describes the approach taken in relation to our relative return capabilities, however, much of this process also applies to our absolute return capabilities where appropriate.
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To illustrate how our investment process works in practice, the following is an outline of the agenda for the Investment Committee meeting.
The Committee opens its meetings with a discussion of recent global and domestic economic developments. The members analyze significant indicators
(e.g. Non-farm payroll, ISM, central bank policy and rhetoric, economic developments in foreign countries) from the prior week and
expectations for the upcoming week and make necessary changes to their forecasts. Unlike the following factors within our investment
process, the score assigned to the economics section does not necessarily drive specific trades, but is used instead as a backdrop
for other decisions.
Based on the Committee's assessment of Federal Reserve policy, investor positioning, and technical analysis, it establishes
a broad direction for the shape of the yield curve (i.e. will it steepen or flatten) and assigns the appropriate score. Once the
direction is established, quantitative tools are used to determine which maturities offer the best risk/return characteristics, as
well as optimal execution points for each trade.
In general, Macquarie Allegiance Capital constrains the duration of all client portfolios to a tight band around the duration of the applicable index/liability target. A proprietary duration analytical model, based on moving averages, supports the trading decisions regarding the direction of interest rates and execution points.
In order to provide a consistent framework for making sector allocation decisions, each sector is reviewed by considering three sets of factors:
The factors used for each sector are determined based on the specific characteristics of that sector. This process is led by the relevant Sector Manager for the following sectors:
The overall allocation in each sector is determined from the score generated through the scorecard process described below. Trading entry/exit points are established through technical analysis.
The key factors for each sector are assigned a score (negative/neutral/positive), which contributes to the overall sector score based on the relative weight of each factor. These scores are then used to drive the sector allocations. All sector positions are taken relative to their benchmark weighting.
Once the scores are determined, input from each Sector Manager is then used to determine the overall allocation to each sector.
Security selection decisions are made by the relevant Sector Manager and involve rigorous bottom-up analysis. The goal of the Sector Manager is to invest in a well-diversified portfolio of securities that reflect the Investment Committee's decisions.
Macquarie Allegiance Capital manages these products by including only those sectors of the bond market included in the Lehman Aggregate Index.
Macquarie Allegiance Capital generally seeks to eliminate, manage or minimize risks associated with:
Major adjustments to portfolio structure are based on long-term, prevailing trends, not in anticipation of short-term movements in interest rates.
Copyright © 1988 - 2008 Macquarie Allegiance Capital.
These materials are provided for general informational purposes only and do not constitute a recommendation to follow, or an offer to sell or a solicitation of an offer to buy, any strategy, security or investment product.
