(1) Spectrum-DL uses a risk budget driven procedure to gain dynamic exposure to the underlying basket, Spectrum Index. The effective exposure varies up to a maximum limit set to 300%. The objective is to offer significant outperformance to the underlying index at a maximum drawdown risk of -15%.
September markets saw almost the exact opposite performance to August with US equities and US government bonds increasing whilst oil, gold and the USD declined.
Spectrum returned 1.61% and Spectrum-DL 4.64%.
Perhaps another example of risk on/off herding behaviour with most investors concentrating on the words of the Federal Reserve Chairman. But it’s worth looking back a little further to see if anything has really changed. QLAB models do not see any changes, hence the stable allocation of the QLAB strategies over the last few months which is continuing to pay off:
- Short to medium term equity volatility remains below long term norms and the strong positive equity trend is intact
- US equity sector performance dispersion remains intact, see table below of 1yr returns, QLAB strategies remain exposed to the top 4 and have been for many months
- Despite crude oil having increased in the last 12 months all other commodities have had very weak performance and the negative overall trend is intact
- 1yr performance of the US 2yr Treasury is above that of cash (just) whilst 5yr Treasury is below that of cash and negative, hence a short duration stance continues to make sense
- CHF, EUR and NZD remain strong versus USD whilst most other G10 currencies have weakened, QLAB strategies remains exposed to those three currencies.
US EQUITY SECTOR 1YR PERFORMANCE, SORTED BEST FIRST
- Equity allocation remains unchanged at 27% with sector allocation in Industrials, Cyclicals, Healthcare and Financials
- Commodity allocation remains at zero
- FX exposure remains at 9% with positions in CHF, NZD and EUR
- Fixed Income exposure remains at 62% in 2YR US Treasuries plus 2% in cash
- Spectrum-DL exposure to Spectrum increases from 280% to 300%.