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3 Nov 2014


The first half of October saw sharp declines in equities globally with a correpsonding spike in realised volatility as well in the VIX, due to fear and certainly some panic. Other assets too showed large price swings, especially in commodities and even US Treasury bonds.

The second half saw volatility decline and US equities fully recovering their losses. Investors could be forgiven for having to reach for the sick bag on this particular roller coaster!

The multi-asset absolute return strategies stomached the situation and performed well in October with positive contribution coming from US Equities, especially Healthcare as well as US Treasury bonds.

Whilst volatility picked up it is worth rembering that what investors feel and react to most is drawdown or loss of capital. QLAB’s absolute return strategies specifically address the risk of excessive losses to enable investors to have the peace of mind to stay invested through the cycle and benefit from their long term investment plans, here are the recent drawdown details versus longer term statistics:

QLAB Asset Allocation is compared to the Naïve Market Portfolio which is defined as equally weighted across the same investment universe, rebalanced monthly. QLAB Asset Allocation had a slightly lower drawdown than Naïve due to more defensive asset selection and has now recovered half its recent losses. Over the longer term of 4 years live plus 11 years simulation the maximum drawdown of QLAB Asset Allocation is much lower than the Naïve portfolio due to the active asset selection and disciplined risk management

QLAB Dynamic Allocation is compared to the S&P500 and the CCI Commodity index as the strategy can take up to about 100% exposure to either asset class at times within its dynamic exposure of up to 300% to its investment universe. The recent QLAB Dynamic Allocation drawdown was slightly higher than the S&P 500 but much lower than Commodities to which it did have selective exposure recently as some commodities rallied before reversing again. The drawdown currently stands at about half the level in mid October. Over the longer term the very large drawdowns of Equity and Commodity markets have been avoided in QLAB Dynamic Allocation due not only to the asset selection but also the dynamic leverage feature which can quickly reduce exposure in a crisis

The models continue to react and, due to poor performance in Basic Materials this equity sector will now be sold, with new allocations in Utilities and Financials. Healthcare and Technology equities remain, as too do US Treasury bonds and some low GBP exposure. In the Dynamic Allocation, exposure is back to 300% due to short term risk declining and the positive equity trend remaining in place.

In the commodity long/short absolute return strategy the performance was negative due to short exposure to Wheat, Corn and Soybeans which all rose sharply between 12 and 17% for the month. Commodities remain highly volatile currently, however the overall negative momentum continues and the strategy remains net short. Performance remains well ahead of long-only benchmarks.

This is one roller coaster we are enjoying riding! For more information on all the strategies and to see if you want to jump aboard, please see the information available at www.qlabi.com or contact us at info@qlabi.com.

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DISCLAIMER: This document does not constitute an offer, a solicitation, an advice or a recommendation to purchase or sell any investment products associated with the material described herein. The purpose of this document is to describe the principles, research and ideas behind the QLAB Invest strategy indices. Prior to an investment in any product tracking a strategy index, you should make your own appraisal of the investment risks as well as from a legal, tax and accounting perspective, without relying exclusively on the information provided by QLAB Invest. Investment products tracking the indices must be issued or/and marketed by a regulated company. This document is strictly for informative purpose. The single source of the underlying asset data is Thomson Reuters Datastream and QLAB Invest cannot guarantee the correctness of the underlying asset data and cannot be held legally responsible in this regard. Any references made to historical performance up to the official live inception do not reflect actual live performance and can be subject to selection, curve fitting and other statistical biases. Performance in investment products linked to the indices may be reduced by the effect of commissions, fees or other charges in excess of those already factored into the index calculations. The level of the indices will fluctuate due to the volatility of the underlying exposures and past performance or volatility is not necessarily indicative of future results.