Markets so far in 2022 have been unusually difficult for investors to navigate. Investors who split their portfolios between equities and bonds, hoping that when equities fall, bonds would provide a safe haven, have suffered. With a retreat from highly valued company shares combined with central banks raising interest rates, and higher inflation, both equities and bonds have suffered. It has not been easy for investors to find diversification.

 

The Jupiter Merian Global Equity Absolute Return Fund (GEAR) has historically offered a good source of diversification because it has had low correlation to both equities and bonds. In the 13 years since the fund’s inception, the fund has been uncorrelated with the MSCI World index.

Rolling correlation of the Jupiter Merian Global Equity Absolute Return strategy with the MSCI World Index
3 month rolling correlation of the Jupiter Merian Global Equity Absolute Return strategy with the MSCI World Index

Past performance is no indication of current or future performance. Source: Jupiter, as at 30.06.2022. Updated on an annual basis. Three month rolling correlation with MSCI World index.

GEAR has also been uncorrelated with the Bloomberg Global Aggregate, an index of global bonds.
Rolling correlation of the Jupiter Merian Global Equity Absolute Return strategy with the Bloomberg Global Aggregate Index
3 month rolling correlation of the Jupiter Merian Global Equity Absolute Return strategy with the Bloomberg Global Aggregate Index
Past performance is no indication of current or future performance. Source: Jupiter, as at 30.06.2022. Updated on an annual basis. Three month rolling correlation with Bloomberg Global Aggregate index.
Correlation matters
Correlation is a statistical relationship between two different securities – such as two different shares, or two different funds, or two different asset classes – and it measures how much they have moved together. Two securities that are correlated have tended to move together – so up together and down together. Two securities that are uncorrelated have moved independently – there may be no relation between them at all, one could have moved up when the other went down. Investors are rightly keen to reduce risk by building diverse portfolios from assets that have been uncorrelated – in the hope that this will continue and not everything will fall at once. Traditionally, diversification has been achieved by including bonds as well as equities, because often when equity markets fall, bond markets have risen. But 2022 has been different year to date: both global equities and global bonds have fallen, and so many investors have found their portfolios are less diversified than they had hoped. That is why some investors are looking afresh at alternative assets that may be uncorrelated both to equities and to bonds – such as GEAR.

How has GEAR achieved its long record of being uncorrelated with both equities and bonds? As a market neutral fund, we construct the portfolio carefully to hold its long and short books in balance. By having a short book, the fund may be able to profit even when equity markets fall. And by holding its short book in balance with its long book, the fund has a low dependency on the equity market in general.