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Kristal Quarterly: 2021 Q1 Round-Up

Kristal Quarterly: 2021 Q1 Round-Up

The very first edition of the Quarterly Investment Strategy is here! Kristal Quarterly takes place once every quarter to give investors the timely sounding board to relook at their investment strategy.The two financial professionals from our Investment Committee (IC), Asheesh Chanda, CEO & Founder, along with Head of Trading & Advisory, Thomas Meichl shared their market sentiments to help investors make decisions in managing their portfolio and wealth.

Themes for 2021

  1. Stay invested for the long term
  2. Hedge to safeguard against volatility
  3. Active rebalancing is critical

The Investment Strategy for 2021

We consolidated outlooks from a sample of major banks and asset managers to give you an overview of the consensus view on the street. The general consensus suggests a positive outlook with regards to Asia stocks and the emerging markets in the current environment. Those markets will remain supported due to the sheer volume of liquidity and stimulus that governments have committed to buoying the economy.[caption id="attachment_4072" align="aligncenter" width="1772"]

(Source: Kristal.AI)[/caption]A myriad of outlooks have taken on diverse positioning in various areas for sectors such as government debt, especially in the hedge fund entities. This is something that can lead to very sharp market moves when these views and assumptions are challenged.So what can an investor do to mitigate this risk? Two strategies that we are focusing on:

Tail Risk Hedging

Tail risk hedging strategies aim to protect against extreme market moves. Buying hedges in place, which are deep out the money or depending on where you want insurance protection for your portfolio.E.g. Kristal Founders Fund (Carry++)The Kristal Founders fund generates returns through model-driven investments as well as tactical trades across rates, credit, equity, volatility, and crypto markets. The portfolio is following an asset allocation approach to achieve stability and consistency of returns. This Fund endeavors to take risk in market selloffs and is using options strategies to maintain hedges against tail risk events. The fund is diversifying by geographies, complimenting investments in US markets with investments in Europe and emerging and developed economies in Asia.

As the market falls, the amount of losses the portfolio bears is reduced significantly, and beyond a certain point, depending on how much hedges you put in place, you actually could have a recovery – similar to what you would do in a tail risk scenario.This requires very active management, almost on a daily or weekly basis. Furthermore, this strategy cannot be done for a small portfolio.Investor’s Tip: Outsource this to a professional manager, allocate to a long-short fund or do a tail risk hedged fund.

Active Rebalancing

Rebalancing is also a form of hedging, adjusting the portfolio according to the specific economic phases that you are going through. This is a long-term process and requires constant monitoring of various economic and market drivers.Different economic phases favor different asset classes and in the last 15-20 years. We are in an unprecedented situation where the correlation between fixed income and equities has strengthened.

The effectiveness of a classic 60-40 portfolio has been at the top of discussions, so one way how investors can achieve hedging in a balanced portfolio is through the introduction of alternative asset classes in their portfolio. This can be done via volatility or FX as an asset class, or even cryptocurrencies that can work as a mitigant against these spikes against volatility.After the US Election and Biden’s win, we have introduced a small allocation of cryptocurrency in some portfolios that we are actively managing that has acted as a mitigant against the US dollar weakening, post-election, in the light of additional stimulus that the markets have expected. Investor’s Tip: Achieve hedging in a balanced portfolio through the introduction of alternative asset classes.

Get Started with Kristal.AI

We hope you have enjoyed the article. Feel free to schedule a call with us if you have any inquiries, our investment professionals will get in touch with you soon.


Kristal Advisors

January 29, 2021

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