Ryan Korinke: Well, I would say that having a quantitative approach and a quantitative toolkit for investing is something that's very important for fixed income managers. A lot of bonds have optionality in them. You need to calculate interest rate sensitivity, your duration. So, we've always had it in our DNA.

But about 15 years ago, we decided to create a team which would specialize in systematic or rules-based or quantitatively-based-oriented strategies. That team is now about nine individuals and they look after things like risk mitigation strategies, risk premia types of strategies, things like trend following that I think we'll talk about today in a bit more. And at the moment, they are looking after about $45 billion in assets in dollar terms.

So, it's quite a significant part of what we do. Certainly, not something that we are as well-known for, but it's been a big effort for a long time and certainly, have a lot of people in place. We have another 60 research analysts in addition to those portfolio managers that are a shared resource. They build models for our fixed income teams on what the curves might look like and valuation models, things like that. But they also help us with research projects and identifying new trading strategies.

Absolutely. So, I would say, one of the types of strategies or techniques that we are having a lot of discussions about right now is something that's known as managed futures or trend following or time series momentum. And I think a big driver of that is the diversification benefits that's something like the strategy has provided historically. If you look at what the correlation between the equity markets and a typical trend following index has been, it's been negative 0.1 over time which is pretty good. That helps many portfolios. At the same time, the return give-up you get by moving some of your assets out of risky assets into something like this, hasn't been that significant. So, in US dollar terms, from 2000 to 2017 the US equity market returned 6.2 per cent over that time period annually. Over the same time, a trend following index returned about 6.1 per cent. So, you didn't really give up that much at all.

Obviously, Australian equities have been up about 10 per cent over that same time period. But an Australian version of trend follower would have done 2 per cent to 3 per cent better given the difference in cash rates and the large amount of cash that sits in these strategies. So, it's a very nice thing to have.

And then importantly, embedded within that, you get the most bang for the buck when equities are struggling the most. So, if you were to divide up equity returns into five buckets, sort of the best periods, the worse periods and then the second-best, third-best, fourth-best and divide that up equally, that bucket of the worse returns, sort of, the bottom quintile, if you will, on average, that's returned about negative 10.5 per cent annually. In those same periods when equities have been doing so poorly, trend followers have been up about 7 per cent, so even better than their average, which again, provides a lot of portfolio benefits. So, today, with where equity valuations are, there's a lot of conversations going along these lines.

I think what's nice for the individual investor is for a long, long time the only way to access these types of strategies were through CTAs which are a type of hedge fund strategies, really private type of funds. But what we've seen over the past 5 to 10 years is that in many market publicly-offered funds have been offering these types of strategies overall. What's interesting given the characteristics that I mentioned, if you put those into a portfolio optimizer and say how much trend following should I have, the optimizer will actually tell you 40 per cent, 50 per cent, sometimes 60 per cent because it is so powerful negative correlation, positive returns. We think that's probably a bit much for most people.

And so, I think, something along the lines of 5 per cent to 15 per cent is something that makes sense. And that's what we've been seeing a lot of folks doing, generally moving some out of their equity allocations and into this and not giving that much in returns but being a little bit more protected in case we are towards the end of the cycle.

Sure. So, I think, I would think about it similarly to how much equity exposure or risk asset exposure someone generally has. So, definitely, more appropriate – if you are sourcing it from the risky assets, definitely more appropriate. If you have bigger risky asset buckets and have more of trend followers and then just sort of taper it off over time in age. But I think what I would do personally is taper that off – taper equities off a little bit first and then this because it is still much more defensive than equities. But typically, the strategies are run at a similar volatility profile as equities. So, call it, 10 per cent to 15 per cent overall. And so, they are nice match with that part of the portfolio.