Tired of market swings? Consider a strategy that looks beyond direction

• Traditional diversification has become less reliable as equity-bond correlations rise, increasing the need for alternative return streams.

• GEAR is a market-neutral, systematic long/short strategy that generates returns from stock selection rather than market direction.

• Historically, it has shown stronger downside resilience, with smaller drawdowns and occasional positive returns during market stress.

• Best positioned as a portfolio diversifier, complementing equities by providing a low-correlation return stream.

Today’s market environment is becoming harder to navigate with traditional tools. Volatility is elevated, and equity markets are increasingly concentrated in a small number of names. At the same time, the diversification benefit of the classic 60/40 portfolio has become less reliable, particularly during periods of stress when correlations rise.

Against this backdrop, investors are asking a simple but important question: can we introduce a return stream that is less dependent on market direction?

This is where strategies like Jupiter Merian Global Equity Absolute Return (GEAR) come into focus.

What is Jupiter GEAR?

Jupiter GEAR is a systematic global long/short equity strategy that has been running since 2009. It uses a quantitative model to identify stocks expected to outperform and underperform, taking both long and short positions across global markets.

The portfolio is constructed to be market neutral. Long and short exposures are broadly balanced, with the aim of keeping overall market beta close to zero. As a result, returns are driven primarily by stock selection — the spread between winners and losers — rather than the direction of the broader market.

The objective is to deliver returns above the cash rate over time, with low correlation to equities and bonds, while targeting volatility of 6%.

Just as important is what the strategy is not. It is not designed to outperform equity markets during strong bull cycles. Instead, it aims to provide a more stable and differentiated return stream across different market environments.

Resilience when markets fall

As a market-neutral strategy, Jupiter GEAR generates returns primarily from stock selection (alpha), rather than overall market direction (beta). As a result, its performance has historically been more resilient during periods of market stress.

To assess this, peak-to-trough drawdown periods for global equities in each crisis are identified, and the fund’s performance over those same periods is measured. On this basis, Jupiter GEAR has consistently exhibited significantly smaller drawdowns, and in some cases delivered positive returns while markets declined.

For example, during the 2020 COVID sell-off, global equities experienced a sharp drawdown of 34%, while the fund declined by only around 6% over the same period. In 2022, during the Ukraine war-driven sell-off, global equities saw a maximum drawdown of 27%, while Jupiter GEAR delivered a positive return of around 7% over that same drawdown period.

Chart 1: The fund protects capital in every major crisis

From a statistical perspective, the fund has delivered positive returns in approximately 73% of months when the MSCI World declined since the fund’s inception to the present, reinforcing its defensive characteristics.

Overall, this behaviour supports its role as a diversifier in a portfolio. While it is not immune to losses, it has historically helped reduce downside risk and smooth overall portfolio volatility.

A strong diversifier in a portfolio

From a portfolio construction perspective, the appeal lies in diversification. Historically, the strategy has exhibited low to slightly negative correlation to global equities and other major asset classes. This means its performance has been largely independent of market direction, rather than driven by broad market movements.

This becomes particularly relevant when traditional 60/40 diversification breaks down. Since 2021, bonds and equities have shown increasing correlation, at times exceeding 0.5. In such environments, where both asset classes move more in sync, adding a return stream that behaves differently can help improve overall portfolio resilience.

As illustrated in the correlation data, Jupiter GEAR has shown negative correlation to key asset classes, including -0.09 to MSCI World, -0.09 to global bonds, and 0.02 to gold. This suggests that when equities and bonds are under pressure, the strategy may behave differently, and in some cases deliver positive returns.

Table 1: Low correlation to other major asset classes

Source: Bloomberg, iFast Compilations.

Data as of 31 March 2026.

The implication is not that this strategy replaces existing allocations, but that it complements them — potentially improving overall risk-adjusted returns over time.

Jupiter outperforms the peer group

Within the long/short strategy space, Jupiter GEAR has ranked strongly against peers, both in absolute return and on a risk-adjusted basis.

Since September 2020, Jupiter GEAR has delivered the highest cumulative return among its peers at 82%, ahead of BlackRock at 57% and Fidelity at 35%. Notably, this was achieved with realised volatility of around 5% — in line with the fund's own target — producing a Sharpe ratio of 1.72, the highest in the peer group.

The significance is not just higher returns, but stronger risk-adjusted return. In other words, the strategy has generated more return per unit of risk than its peers, reinforcing its role as a diversifier rather than simply another low-volatility allocation.

It is also worth noting that this performance is achieved after fees. The figures are based on NAV returns, which are net of all fees, including performance fees. While the expense ratio for the strategy is relatively higher (2.70%, compared to approximately 2.21% for Fidelity and 2.29% for BlackRock), the net results suggest that the strategy has been able to deliver stronger outcomes even after costs.

Chart 2: The fund is leading the peer group on return

Chart 3: The fund is leading the peer group on risk-adjusted return

Note: BlackRock Systematic Global Equity Absolute Return Fund is not onboarded on our platform and is currently an AI fund, not open to retail investors. It is included here for performance comparison purposes only.

The weak spot: 2018–2020 and model enhancement

No strategy is without weaknesses, and for Jupiter GEAR, the most notable period was 2018 to 2020.

This period, often referred to as the “quant winter,” was characterised by a breakdown in the historical relationship between fundamentals and stock performance. Expensive companies with weak fundamentals outperformed, while cheaper, fundamentally stronger companies lagged. 

The model at the time was more heavily weighted towards fundamental signals. As a result, it was positioned away from the stocks driving market returns and, in many cases, was short those names.

The outcome was a period of underperformance. Importantly, this was not a failure of execution, but a reflection of an unusual market regime where traditional relationships did not hold. The subsequent unwinding of this dynamic in late 2020 led to a recovery in performance.

How the strategy has evolved

Following this period, Jupiter made several adjustments to improve the robustness of the model.

First, the range of factors used in stock selection was broadened. In addition to fundamental signals, the model now incorporates alternative inputs such as analyst behaviour, fund flows, and sentiment derived from company communications.

Second, factor weights are no longer static. The model dynamically adjusts the importance of different signals depending on market conditions. During periods of uncertainty, for example, it may place greater emphasis on sentiment and less on fundamentals — as seen during more volatile phases such as Liberation Day selloff.

Overall, the model is now designed to be more adaptive across different market regimes, rather than relying on a fixed set of factor exposures.

Evidence of improvement

Since these enhancements were implemented, performance has been more consistent. The fund has delivered positive returns in each calendar year from 2021 to 2025, across both rising and falling markets. Backtesting also suggests that, had the updated model been in place during the 2018–2020 period, drawdowns would have been significantly smaller. While past performance is not a guarantee of future results, this does provide some indication that the strategy has evolved in response to its earlier weaknesses.

Chart 4:  Backtesting suggests that the updated model would have had a much smaller drawdown

Chart 5:  The fund has delivered consistent returns over the past five years

Understanding the trade-offs

A natural trade-off of the strategy’s design is its behaviour in strong bull markets.

Because the portfolio is market neutral, it does not fully participate in equity rallies. In recent years, such as 2023 to 2025, the fund delivered positive returns, but lagged broad equity indices.

This trade-off is structural and expected given the market-neutral mandate.

The implication for investors is clear: this should not be viewed as a replacement for equity exposure. Instead, it plays a complementary role, providing diversification rather than market participation.

There are several risks investors should be aware of.

• Factor regime risk: performance may be impacted when factor relationships break down, as seen in 2018–2020
• Model risk: the strategy is systematic and dependent on signal effectiveness
• Short-side risk: including the potential for short squeezes
• Derivative risk: the use of derivatives introduces leverage and counterparty exposure

While the fund aims to control volatility, it can still experience drawdowns and is not guaranteed to deliver positive returns in all environments.

Final positioning

The Jupiter GEAR is best understood as a diversifying return stream, rather than a directional bet on markets. It brings a differentiated source of return, backed by a long-term track record and a structure that is less reliant on market direction. Importantly, the strategy has shown improved consistency following the enhancements made post-2020.

The role in a portfolio is therefore clear: not to replace equities, but to complement them by introducing a return driver that behaves differently, particularly during periods of market stress.

In an environment where volatility is higher, correlations are less stable, and traditional diversification is less reliable, having a strategy that can deliver returns independent of market direction is not just additive — it is increasingly relevant.

For investors looking to add a market-neutral strategy as a portfolio diversifier — targeting returns with low correlation to traditional stocks and bonds — the Jupiter Merian Global Equity Absolute Return L USD Acc is available on our platform.

A 5% allocation serves as an initial diversifying position; a 10% allocation makes the portfolio-level benefit more material. Allocations beyond this range are generally not warranted, given the strategy's role as a complement rather than a core holding.

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools.  iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.