Alternative Investment: Managing Downside Risk And William Blair Macro Allocation Fund Video


How does the Fund seek to manage downside
risk? As portfolio managers, our job is to take
risk. It’s not to avoid risk. The key is taking risk that’s compensated and avoiding
risk that’s uncompensated. But even when you do that, there’s always going to be
not just upside, but downside in portfolio performance, and that’s important to remember.
It is also important to think about the tools that we have in the Macro Allocation Fund
to potentially manage those upside and downside exposures. First, we have the opportunity to go long
and short. We have the opportunity to sell assets and currencies that are priced way
above fundamental values, and that helps us avoid things that may decline in price. It
doesn’t mean that they won’t go further up, but we do have the opportunity to take
advantage of those dislocations and avoid the risks that come with that. That ability
to go both long and short also results in a relatively low correlation with respect
to the equity market. The Macro Allocation Fund will tend to have a low correlation and
if prices are very, very far above fundamental values, that correlation could even be negative
with respect to the equity market. If prices are very low, that correlation could
go much higher, but on average we think it would be relatively low. In addition, in managing
the Macro Allocation Fund, we have a significant amount of our active risk taken in currencies.
Currency exposure and active currency management provides a very, very diversifying impact
on the portfolio. That’s been our experience and that as well is our expectation as we
go forward. That will help mitigate downside risk in a portfolio. Finally, we have the ability to use tools
such as options to manage the upside and downside exposure of the portfolio. Options enable
us to buy insurance against the downside when those options are cheap, and it also allows
us on the other hand to sell insurance when the options are expensive. So we’ll be on
both sides of those option transactions, but when prices are way above fundamental values,
buying that protection is an important element in managing the downside exposure of a portfolio. So in the end we have a combination of tools.
First, the portfolio is expected to have a relatively low correlation. Second, the exposure
to currencies and the active management of currencies is an important diversifier. And
third, we do have the ability and do actively use options in the portfolio to potentially
protect the downside. DISCLOSURE
The opinions and forecasts expressed in the following interview are those of Brian Singer
as of February 3, 2014, and may not actually come to pass. This information is subject
to change at any time based on market and other conditions and should not be construed
as investment advice or a recommendation of any specific security. Not all securities
held in any William Blair strategy portfolio performed as favorably as those discussed,
and there is no guarantee that these or other securities will perform favorably in the future.
Investments are subject to market risk. The Fund involves a high level of risk and
may not be appropriate for everyone. You could lose money by investing in the Fund. There
can be no assurance that the Fund’s investment objective will be achieved. The Fund is not
a complete investment program and you should only consider the Fund for the alternative
portion of your portfolio. Separate accounts managed by the Advisor may invest in the Fund
and, therefore, the Advisor at times may have discretionary authority over a significant
portion of the assets invested in the Fund. In such instances, the Advisor’s decision
to make changes to or rebalance its clients’ allocations in the separate accounts may substantially
impact the Fund’s performance. The Fund is designed for long-term investors.
The Fund may use investment techniques and financial instruments that may be considered
aggressive—including but not limited to the use of futures contracts, options on futures
contracts, securities and indices, forward contracts, swap agreements and similar instruments.
Such techniques may also include short sales or other techniques that are intended to provide
inverse exposure to a particular market or other asset class, as well as leverage. These
techniques may expose the Fund to potentially dramatic changes (losses) in the value of
certain of its portfolio holdings. Investments are subject to a number of other
different types of risk, including market risk, asset allocation risk credit risk, commodity
risk, counterparty and contractual default risk, currency risk, and derivatives risk.
For a more detailed explanation and discussion of these risks, please read the Fund’s Prospectus.
Please carefully consider the Fund’s investment objective, risks, charges, and expenses before
investing. This and other information is contained in the Fund’s prospectus, which you may
obtain by calling +1 800 742 7272. Read it carefully before you invest or send money.
© William Blair & Company, L.L.C., distributor. 222 West Adams | Chicago, IL 60606 | +1 800
742 7272 | williamblairfunds.com William Blair & Company, LLC | 222 West Adams
Street | Chicago, IL 60606 | williamblairfunds.com

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