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4 Jan 2013

SPECTRUM MONTHLY UPDATE DECEMBER 2012
Performance figures

December 2012     0.20%
Full year 2012         3.00%
2011                         4.18%
Since inception      3.59% (since 1-Jan-11, annualised)
Risk (volatility)         5.09% (since 1-Jan-11, daily data annualised)

The end of the year in the financial world is traditionally a time to review predictions made a year ago and make new predictions for the coming year. Yet again, anyone who’s key predictions a year ago worked out should consider themselves lucky. Thinking about the various turning points that occurred and the power of just a handful of politicians and central bankers I personally cannot see how any outcome could be predicted in advance. One must therefore ask the question if making significant or concentrated bets related to such predictions is courageous or just reckless.

At QLAB we have developed reactive and defensive strategies which do not make use of such predictions. The strategies react to market movements and are implemented systematically so that the consistency of reaction provides an edge over passive exposure. Here are a few selected highlights of what occurred in the Spectrum strategy in 2012:

EQUITY EXPOSURE (US sectors) was mostly between 24% and 31% yet fell briefly in June to 0% in response to the sharp equity market drawdown of about 8%. The quick recovery meant the equity position was quickly re-established providing good performance contribution over the year

COMMODITY EXPOSURE remained at zero exposure the entire year. Despite a few single commodities doing well (e.g. wheat, copper, zinc and gold) commodities as represented by the CCI index delivered a negative return over the year which meant they were not selected due to this weak overall performance compared to treasuries which we believe is a key behavioural indicator

FX EXPOSURE (7 currencies long versus USD) was around 7% first half of the year increasing to 12% in the second half of the year. Some good positive trends in currencies such as NZD, CAD and AUD provided solid performance contribution whilst exiting the position in JPY July turned out to be also good for performance as JPY has weakened 10% since then

TREASURY EXPOSURE (2YR, 5YR) varied between 56% and 90% which was also good for performance, despite low yields the 5YR treasury bond returned 1.8% in 2012

3.0% full year performance which compares well to cash and inflation and also the HFRX Macro CTA Index which returned -1.09% and the HFRX Macro Systematic Diversified index which returned -7.40%. Next month once more absolute return index data becomes available we will show a more complete performance analysis over the last 2 years

A stable level of risk or volatility which varied between 5.1% and 6.0%

Only 3 negative months in May, June and October

A worst drawdown of -2.0% which occurred in the middle of November and which was fully recovered 6 weeks later on 2-Jan-2013 with a new high water mark.

The asset allocation for the coming month is as follows
  • Equity allocation increased 7% to 33% with a new position in Basic Materials and remaining positions in Cyclicals, Healthcare, Financials and Telecomms
  • Commodity allocation remains at zero due to continued poor relative performance as an overall group
  • FX exposure increased from 12% to 16% with new positions in CHF and EUR with remaining positions in CAD, AUD, NZD and GBP. Interestingly there is exposure to all currencies except for JPY which is currently experiencing weak performance
  • Fixed Income exposure to 2YR and 5YR US Treasuries reduced 11% and 35% respectively which is the lowest exposure for over a year. Cash is at 5%.
See overview SPECTRUM-IDX-OVERVIEW_31DEC2012.pdf

We wish you all a very happy and healthy 2013.

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.