Staying on track with overlay management: tactical asset allocation, portfolio drawdown, risk management
Staying on track with overlay management: tactical asset allocation, portfolio drawdown, risk management
Staying on track with overlay management: tactical asset allocation, portfolio drawdown, risk management
A tailored strategic asset allocation requires a tailored and modular overlay approach

Overlay management concepts: individual, modular and tested.

Each investor has his own unique investment strategy and his own unique approach to strategic asset allocation (SAA) and, thus, his own preferred driving style. The Portfolio Management team has competently, professionally and successfully steered overlay mandates on the ideal line for the last 18 years, using a tailored overlay approach proven in diverse market environments. Overlay concepts are available specifically as FX Overlay, as well as in modular form as Risk Overlay and Risk OverlayPLUS. Overlay mandates under management total 41.7 billion euros (as of March 2021). In order to stabilise the portfolio performance, Universal-Investment provides a comprehensive management of equity-, interest-rate-, currency- and spread-related (optional) risks, using derivatives in a separate overlay sub-segment. As a Master KVG, Universal-Investment has an overview of the fund, including, for example, its FX exposure.

OVERLAY
MANAGEMENT

Each overlay mandate is tailored to the investor's specific requirements, overlay system, risk overlay, Risk OverlayPLUS, FX Overlay
Maintaining the ideal line and staying on track in the process is challenging in complex market environments. Using a proven overlay approach with tailored and modular features, the Portfolio Management team at Universal-Investment  strives to steer an investor’s strategic asset allocations on the ideal line and keeps it on track.  

Along with other components of the driver assistance system, the “tactical signals“ component offers the possibility of an efficient risk budget allocation. The fundamental tactical signals therefore play an active role.
Source: Portfolio Management Universal-Investment-Luxembourg S.A., Frankfurt branch
Overlay management, stay on track with Overlay management even in difficult terrain

Each overlay mandate is tailored to the investor's specific requirements.


  • The chance to participate in positive market developments, as well as to mitigate the effects of negative developments (defending the lower limit)
  • The chance to react quickly and flexibly to market risks
  • Risk monitoring of individual securities – including those managed by an external asset manager (KVG)
  • Modularity: separate budgets for different risk types
    • The main risk categories: equity-, interest-rate- and currency-related risks
    • Non- or only partly-manageable risks, including, for example, spread and overnight risks
    • Dynamic risk budgeting by means of tactical signals possible (Risk OverlayPLUS)
  • Assessment of different asset classes, risk categories and overlay specifications
    • Hedge quality, risk allocation, risk budgeting
    • Regulatory and governmental guidelines
  • Management of risk categories either individually or as a whole
  • The tailored overlay is underpinned by a customised software solution
A modular risk overlay approach enables tailoring as well as separate management of various risk types

A modular overlay approach – hedging only where necesary.


  • Allows a customised approach through modular concepts
    • Separate management of multiple risk categories from Risk Overlay to
      Risk OverlayPLUS
  • Consistent risk overlay process tailored to various risk categories
    • Targeted use of derivatives: derivatives hedge risk categories rather than asset classes
    • Reduces the tendency of a pro-cyclical reaction by making anti-cyclical risk budget transfers between individual budgets (Risk OverlayPLUS)
    • Diversifies where appropriate and hedges risks where necessary
    • Reduces the likelihood of an expensive full hedge
  • Increases risk transparency, for example through performance by risk category
Overlay management, Risk OverlayPLUS, tactical signals, intelligent risk budget allocation using tactical signals

Overlay control logic is fine-tuned to tactical signals.


  • Can be used irrespective of the signal provider
    • Successful cooperation with Vescore by Vontobel Asset Management for more than 10 years
    • Tactical signals play a fundamental, active role
  • Fine-tuning in key overlay levers
  • Performance harvesting through signal-dependent limits for risk budgets
  • Anti-cyclical, tactical re-entry into the market through signal-based budget release
  • Intelligent risk budget allocation through tactical signals
Overlay management, Risk OverlayPLUS, European equity market from January to August 2020, interest rate market from August 2017 to December 2019, return distribution of a representative strategic asset allocation (SAA) with and without overlay management

Experience and what it can look like.

There are several reasons for going off track with a portfolio. And there is a tried-and-tested way to stay on track. The following examples show what this can look like in practice during key market events:
European equity market from January to August 2020, indexed performance, equity exposure, european equity market, Risk OverlayPLUS
Interest rate market from August 2017 to December 2019, indexed performance, underlying interest rate, Risk OverlayPLUS, underlying interest rate + Risk OverlayPLUS
Simulation of a return distribution of a representative strategic asset (SAA) allocation with and without overlay management
Limiting the influence of unintended currency bets on performance with FX Overlay

Currency hedging by using a separate FX Overlay sub portfolio.

Enabling an investment in global equity and fixed income markets while limiting the influence of unintended currency bets on performance is the responsibility of FX Overlay management. On this basis, Universal-Investment positions its currency hedging product in a separate overlay sub portfolio which is characterized by best execution competitive trading and reduced cash requirements. Moreover, the administrative Master KVG vehicle available from Universal-Investment provides a holistic view over the entire currency exposure in a master fund, thus considerably facilitating FX Overlay management.
Video interviews on overlay management

Risk Overlay, Risk OverlayPLUS and FX Overlay.

Manuel Stratmann and Glenn Marci, Senior Portfolio Managers Overlay & Quant Models at
Universal-Investment-Luxembourg S.A., Frankfurt branch characterise our three Overlay approaches.
Universal-Investment is the market leader for Master KVGs and the largest independent fund service platform in German-speaking Europe

Stay on track with overlay management.

We provide solutions for both, cross-segment overlay management for portfolios on your platform of choice as well as outsourced overlay management and overlay management as administrative KVG. Universal-Investment has extensive experience in the implementation of overlay management concepts: individual, modular and tested. We are happy to discuss in person with you.

With over 687 billion EUR assets under administration (as of May 2021), Universal-Investment is the market leader for Master KVGs and the largest independent fund service platform in German-speaking Europe.

Thorsten Schneider
Thorsten Schneider Head of Sales Institutional Investors
& Fund Distribution
Universal-Investment-Gesellschaft mbH
+49 69 71043 164
thorsten.schneider@universal-investment.com

Peter Flöck
Peter Flöck Head of Product Management
Head of Branch
Universal-Investment-Luxembourg S.A.
Frankfurt branch
+49 69 71043 636
peter.floeck@universal-investment.com

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