How risk models can uncover the real performance numbers behind J O Hambro’s strategies

As Head of Investment Risk and Performance Analytics at J O Hambro Capital Management, Simone Guidi oversees the risk framework supporting GBP 17 billion in active equity strategies. When performance numbers suggested their stock selections weren't working, traditional analysis would have missed the underlying cause. In this interview, Simone explains how Axioma risk models revealed how active management creates value – the issue was down to structural market conditions and not country or style factor bets.

Separating external shocks from investment strategy

• Factor analysis reveals true risk drivers
  When a strategy wasn't performing as expected, a glance at the numbers would have suggested that the active management approach wasn’t working. But Guidi's risk model analysis surfaced the underlying dynamics at play.

  "What we discovered is that last year, that universe suffered a 4.5 standard deviation negative event. So the problem that we had there wasn't that the selection wasn't appropriate, the problem that we were having was due to the universe that we started."

  The risk models enabled the team to isolate active management decisions from structural market conditions out of their control. J O Hambro could identify that their stock selection was adding value thanks to the granular factor analysis that provided a more complete picture of return drivers.

• Sophisticated models enable precise attribution
  "The [Axioma] model that we subscribed to, the Worldwide Equity Risk Model, it managed to find the right balance between very interpretable model, a global model, without losing the local insights that local factor models usually provide," explains Guidi.

  This level of sophistication is essential for accurately attributing performance and proving where active management creates value.

• Framework for demonstrating investment success

  "If we didn't have the tool in order to frame the problem, it would've been very difficult to understand where to look and what to improve," Guidi notes.

  Risk models provide the evidence needed to validate active management decisions and demonstrate value creation to stakeholders and clients.

The impact

Through the Axioma risk models, J O Hambro’s risk management team are able to continually enhance their approach, proving that active management with the right manager and tools, really does work. The tools strengthen collaboration with investment teams by providing clear evidence of strategy effectiveness, transforming risk management from support function to strategic partner.