May 2012 - 0.91%
YTD 2012 1.73%
1 Year 1.86%
Since inception 4.19% (since 1-Jan-11, annualised)
Risk (volatility) 5.72% (since 1-Jan-11, daily data annualised)
It was a month that packed in a lot of bad news with resulting weak markets: S&P 500 returned -6.3%, Commodities (CCI) returned -8.8% whilst US Treasuries posted gains with general strengthening of the USD. After 7 positive months, Spectrum returned -0.91% in May, which given the circumstances shows the conservative stance of the strategy despite the equity exposure.
Allocation to equity sectors is reduced from the current level of 31% to zero. Given the commodity exposure has been at zero now since last Autumn (CCI returned -12% since then) Spectrum has gone into its most defensive mode with 100% exposure to US treasuries, FX positions and cash.
The last time this happened was in September 2008 and people have asked us recently if the model is predicting some kind of “Lehman moment”. All we can say is that Spectrum is not predictive, but rather reactive to current market conditions which can tend to persist for some time. There are enough signals to go very conservative currently, probably concurring with many people’s gut feeling. However, given Spectrum is fully systematic, we are simply not able to introduce emotions into the asset allocation process. Perhaps it is worth asking what kind of conviction and view a discretionary process would require to move from 31% equities to zero from one month to the next.
The asset allocation for the coming month is as follows
- Equity allocation goes from 31% to zero due to sudden weakening of equity performance versus US Treasuries
- Commodity allocation remains at zero due to poor relative performance properties as an asset class
- In FX the 2% AUD position drops out, JPY increases from 3% to 5% with a new NZD position of 4%
- Fixed Income exposure to 2YR and 5YR US Treasuries increases to 22% and 68% respectively with 1% in cash.
See overview SPECTRUM-IDX-OVERVIEW_31May2012.pdf