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A use case: Zurich Horizon Funds

Discover how Zurich and Columbia Threadneedle successfully use Insight to provide strategic asset allocations, ensuring strong performance across five risk-profiled multi-asset funds. And see why Insight can ensure asset allocations remain highly efficient and deliver maximum expected return.

Zurich

Key objective

Zurich operates five risk-profiled multi-asset funds known as the Horizon Fund Range. With three levels of risk management, these funds have a unique investment process. Input from EValue, Columbia Threadneedle and Zurich Investment Services has led to strong performance since the funds' launch in 2014.

The funds aim to achieve a positive investment return for a targeted level of risk by investing in a mixture of asset classes. And to ensure this, it's key to review and change the weightings between these classes in a measured way.

Let's take a look at how our stochastic asset model, Insight, works with Columbia Threadneedle and Zurich to ensure strong performance for these funds.

Strategy

Our methodology

Insight provides the strategic asset allocations (SAA), which is tactically allocated (TAA) by Columbia Threadneedle's highly-experienced multi-asset team. Then, Zurich Investment Services provide a final layer of high-quality risk management oversight.

As Columbia Threadneedle run the funds and manage them in line with the EValue risk profiles, all advisors need to do is monitor their clients' risk appetite, rather than the funds' level of risk too.

EValue's investment forecasting illustration on a tablet

Our strategy consists of five stages:

Insight is delivered as a set of scenarios which together show the range and average outcome that history, market conditions and careful modelling lead us to expect.

1

EValue Strategic Asset Allocation

Every quarter, we update Insight with the latest economic data. Using this updated data, we produce 10,000 future scenarios of how the market might progress from its current position. These revised forecasts let us review and update the asset allocations for each risk profile to ensure they remain efficient, i.e. that they deliver the maximum expected return for the risk budget associated with each Horizon fund.

2

Zurich Horizon funds asset allocation

Columbia Threadneedle considers our asset allocations and decides on the tactical asset allocations for the Zurich Horizon Multi-Asset funds.

3

Fund selection

The Columbia Threadneedle Managed Fund team use our asset allocation model, alongside their strategic market views, to help select the most appropriate funds for the Zurich Horizon Multi-Asset funds to hold.

4

Risk Management

Columbia Threadneedle's independent risk team analyse each of the Zurich Horizon Multi-Asset funds in depth. This will highlight any potential investments that could result in the funds having an undue concentration of risk, and ensure the funds remain within their designated risk profile.

5

Oversight

In addition to the above, Zurich undertakes portfolio risk management, to ensure the funds are run in accordance with the fund objectives.

Our solution

Discover what we did and how it could apply to your business.

We use our sophisticated economic scenario generator, Insight, to produce thousands of potential plausible future market forecasts, starting from today's market conditions. Using these forecasts for combinations of different asset classes, you can construct asset allocations and portfolios with optimised risk-reward characteristics.

 

This approach to asset allocation is successful for several reasons:

  • There's a consistent definition of risk, which isn't driven by recent short-term market volatility. Instead, it looks forward to the volatility of the outcomes over the likely term of an investment.
  • Work has gone into understanding the durational risk of bonds. Because of the risk-reducing properties of bonds, lower risk investors can achieve their chosen risk profile with portfolios containing a higher exposure to assets with higher risk-reward characteristics. This offers them the potential benefit of higher returns while accurately targeting their assessed risk profiles.
  • Insight is a multi-asset, multi-market, multi-currency global economic model. And its comprehensiveness and consistency provide the framework and discipline for assessing the relative value of different asset classes.
  • Our thorough, systematic approach ensures that investment decisions don't get caught by any single ideas – regardless of how interesting. Instead, they systematically consider the full range of potential outcomes. Without this, decisions risk getting blow off course by every passing fancy (or scare) that might influence investment markets.

The results

Top ranking!

for three funds

Strong performance

since launch in 2014
2014 2015 2016 2017 FE Crown rating Charge (OCF)
Fund 1 1 1 1 4 ** 0.84%
Fund 2 1 1 1 1 **** 0.82%
Fund 3 1 1 1 2 ***** 0.81%
Fund 4 1 1 1 1 ***** 0.81%
Fund 5 1 1 1 1 ***** 0.81%

Year-end quartile ranking
Source FE Analytics 30th November 2017

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