Pictet Funds has announced the launch of a lower-risk absolute return product

Date: Friday, November 2, 2007
Author: Hedgeweek.com

Backed by the strong track record of the EUR2bn PF (Lux) Absolute Return Global Diversified Fund, Pictet Funds has announced the launch of a lower-risk absolute return product, the PF (Lux) Absolute Return Global Conservative Fund.

The new fund, which pursues a similar approach to the earlier fund, will target an absolute return equal or higher to Eonia (weighted average of overnight euro interbank rate) plus 2 per cent over a 12-month period.

Pictet's approach to absolute return is based on a combination of two sources of performance, beta and alpha. In achieving beta, Pictet seeks exposure to a broad range of diversified risks by investing in a large selection of investments including derivatives, covering developed and emerging equity markets, fixed-income markets for all the major currencies, maturity ranges and credit qualities.

To obtain alpha exposure, Pictet says it selects the best products available within the group. The product selection process is based on quality of the investment process, confidence in the investment team managing the fund, and alpha generation potential and portability, and involves adding the values generated by the most skilled fund managers.

Pictet performs a global assessment of market conditions using a proprietary quantitative model that incorporates a set of risk-aversion indicators reflecting investors' confidence levels, economic expectations, market momentum, as well as liquidity preferences.

The output of the model is then used to vary the level of exposure to global risks, in an attempt to avoid cyclically unattractive risk classes. In the event of extreme situations, the fund might reduce the global risk premium exposure to zero, and is even flexible enough to have negative exposure to equities by shorting beta.

To build its alpha strategy, Pictet chooses its best in class investment products, aiming to extract alpha without holding any risk premium beta exposure. This is done by hedging market risk through a basket of derivatives instruments closely replicating the fund's benchmark.

The final step is to combine the beta portfolio and the alpha portfolio in a way that satisfies risk management and margin constraints. Foreign currency exposures are hedged whenever possible, and exposures are monitored daily using a risk-management platform.