Stress-testing P1’s models and helping clients appreciate risk

Assessing portfolio risks is never straightforward, and extreme asset moves can negatively impact portfolios in ways which may not be captured by conventional risk measures. If diversification breaks down portfolio values may not be protected. Stress-testing can be used to estimate portfolio impacts, typically looking at historical market events or artificial scenarios. The pros and cons of these approaches were previously discussed. This article summarises the results of historical stress-testing applied to P1’s Hybrid model portfolios at
the end of March 2017. Stress-testing is periodically carried out on P1’s models, and further testing has been carried out since then; however, the March 2017 results can now be released.