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 stock selection decisions

Factor analysis reveals true risk drivers
When a strategy wasn't performing as expected, a glance at the numbers would have suggested that the stock selection approach wasn’t working. But J O Hambro’s Risk Team in-depth factor risk analysis surfaced the underlying dynamics at play.

"By combining Axioma Optimizer and Factor Risk models, we managed to build an internal benchmark-optimized universe for the strategy. What we discovered is that last year, that universe suffered a 4.5 standard deviation negative event versus the market cap benchmark. The discovery, what we concluded, was that the problem didn’t lie with the stock selection not being appropriate; the problem was with the universe we started with."

This enabled the team to isolate active management decisions from structural market conditions out of their control. J O Hambro, thanks to the granular factor analysis that provided a more complete picture of return drivers, could focus their research and efforts on market signals, instead of the noise.

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 the right tools can add value to the investment process. The tools strengthen collaboration with investment teams by providing clear evidence of strategy effectiveness, elevating risk management from support function to strategic partner.