Multi-Asset Absolute Return Strategy Performance as of 31-Mar-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
March saw a focus on the linguistic skills of Janet Yellen turning “patient" to "not impatient" in the Fed’s Open Market Statement. Consequently US Treasury yields fell, in particular the 5YR US Treasury peaked at a yield of 1.65% in the first week and ended the month down at 1.38%. The drop in yields meant the 5YR Treasury bond returned almost +0.8% for the month and the 2YR +0.2% and these positions contributed most strongly to the performance of the two QLAB absolute return strategies which both delivered positive returns for the month.
The S&P500 traded in a range, ending the month down -1.6% however with high dispersion between the sectors. For example Basic Materials down -4.2%, Technology -3.3% and Energy -2.1% whilst Healthcare up +1.3% and Consumer Discretionary up a tiny fraction +0.04%. The sector positioning in the QLAB strategies was favourable and contribution to performance, although negative at -0.24% provided some benefit against the greater loss shown by the US equity market as a whole.
The USD continued to strengthen and most commodities continued to decline, and with no exposure to FX or commodities (exited in September) there was no negative performance impact.
Performance of the two QLAB return strategies over longer time frames remains in line with expectations and both strategies hit all-time highs several times during the month.
In terms of forward looking expectations, the number one question we get these days is what will happen if equity markets and or bond markets fall sharply. The number two question is on return expectations over the next few years.
Starting with the first question which is easier, given the QLAB investment process is about managing risk rather than returns. If US equities decline sharply, by about -8% relative to US Treasury bonds (relative momentum) then equities will be exited completely. Similarly if the 5YR US Treasury bond falls about -3.8% relative to cash it will also be exited. Both these actions will curtail drawdowns in the event of a major sell-off in either or both assets. However as long as the current situation of positive relative momentum exists then the positions will stay on, which is driving the positive performance. It is this high conviction and defensive asset allocation process which creates the convex return profile which we believe is ultimately most attractive for investors.
The second question is more difficult as nobody can predict what the markets might do to the upside over the next year or two, or what the path might look like. The two QLAB absolute return portfolios have been designed to stay diversified and invested, except in downturns when the asset allocation can quickly change or cash allocation increase. The strategies have been tested over all the crises of the last 35 years and have stood up well to quite diverse situations delivering superior returns to buy-and-hold strategies covering the same assets. The high discipline in managing downside risk means investors have the peace-of-mind to stay invested throughout the cycle which we argue is the best way to pick up the upside offered by the market over time, whatever that upside might be.
All the QLAB strategy indices are accessible on Bloomberg, via QLAB <GO> or through individual index tickers shown on our website. For example the two absolute return strategy tickers are QLABQAA and QLABQDA respectively. They have been live since 1-Jan-11 but are shown calculated further back in time to allow comparison to other indices, independently from the managed solutions available. All QLAB indices are calculated net of trading costs to allow a fair comparison to be made with buy-and-hold market indices.
QLAB Asset Allocation and QLAB Dynamic Allocation are accessible in two formats via our product partners:
Please contact us at email@example.com if you would like to receive product information directly from our 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