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2 Mar 2015

QLAB Invest - Update February 2015

Multi-Asset Absolute Return Strategy Performance as of 28-Feb-2015

RETURNS: Annualised if >1Y
RISK: Annualised standard deviation or volatility, daily data
MDD: Maximum drawdown, peak to trough
Strategy indices live since 1-Jan-2011, net of trading costs, gross of product fees. Investable products may have lower returns and shorter track records

February saw a resumption of the US equity bull market with the S&P500 soaring over 5% and a corresponding sell-off in US Treasury Bonds. Whilst Oil and Copper rallied, most other commodities continued to sell off, providing a mixed bag for multi-asset strategies.

The QLAB absolute return strategies posted a positive month with the strongest contribution coming from Healthcare, Consumer Discretionary and Financial equity sectors. There was negative performance from Utilities which sold off sharply, about -6%, and the 5YR US Treasury bonds which returned -1%. New all-time-highs were hit for both strategies on 5th then again on 24th February.
Performance since strategy inception (1-Jan-11) remains close to expectations of Cash + 5% for QLAB Asset Allocation and Cash + 10% for QLAB Dynamic Allocation with realised volatility at the lower end of expected ranges with 4.4% volatility for Asset Allocation and 11.1% for Dynamic Allocation. The Luxembourg funds launched in 2014 and the Swiss listed certificates launched in 2013 continue to track the strategy indices closely when accounting for product fees.
We often get asked about how the asset selection signals are generated and what it would take now to exit US Equities or US Treasury bonds so let's briefly cover that.
The asset selection is based on relative momentum and the models analyse price movements between competing assets. For example over about the last year US equities have performed strongly versus 5YR US Treasuries, so the signal to continue holding equities remains in place. To exit equities there would need to be a relative performance of about -10% between US equities and Treasury bonds, so whilst there would be a drawdown initially, the drawdown will be curtailed by exiting equities, a high conviction move. Also, given the portfolios usually hold both assets, if money flows from equities into treasuries then the drawdown would be less than holding only equities, a benefit of the multi-asset approach.
Similarly the 5YR US Treasury bond continues to outperform cash and hence remains in the portfolio, despite the 1% sell-off in February. To exit the Treasury bond and shorten duration would require a further sell-off of about 3% or a sudden yield increase from 1.5% to about 2.1%.
Within equities there continues to be rotation between the sectors based on the same approach. For example this is why the Healthcare sector has been held now since the end of 2011 which is the strongest contributing position to performance followed by Consumer Discretionary which has also been held most of the last 4 years.
Finally, the portfolio construction and risk management processes take into account stressed correlations, non-normal market behaviour and apply various exposure constraints, so there is additional robustness built in, independent from the asset selection.
So whilst we know that some investors are nervous about equity and bond valuations the QLAB investment models will react should equities falter or yields rise rapidly, hence the solutions come with risk management included.


QLAB pitched at the AIF Factor award hosted by ABN Amro Clearing and in the end came second, which out of about 100 applications we shouldn’t feel disappointed with. It was good to get the feedback that our message on helping investors avoid behavioural biases resonated with the panellists and audience. It was a pleasure to meet some of you there and also make some new friends.
QLAB will join Neue Helvetische Bank, our Swiss certificate management partner, at the Swiss Derivative Awards on 26th March where the QLAB Dynamic Allocation certificate has been nominated for an award. I hope to see some of you there also.

QLAB Asset Allocation and QLAB Dynamic Allocation are accessible in two formats via our product partners:
  • RPM Risk and Portfolio Management (www.rpm.se) manage two Luxembourg funds: QLAB Convexity Fund and QLAB Convexity DL Fund  available to professional investors
  • Neue Helvetische Bank (www.nhbpro.ch) manage two listed certificates traded on the SIX stock exchange available to Swiss domiciled retail and professional investors
Please contact us at info@qlabi.com if you would like to receive product information directly from our partners.

Close disclaimer

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.