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3 Aug 2015

QLAB Invest - Update July 2015

Multi-Asset Absolute Return Strategy Performance as of 30-July-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

July was a strong month for the QLAB strategies driven by the US equity sector and US Treasury exposure with positive performance across all positions, bringing YTD figures up to quite satisfying levels. Actually new all-time highs have been set every month except May this year.

This performance is driven by successful asset selection plus sound risk management:
  • The selective equity sector exposure has delivered almost 2% of true alpha YTD versus holding all sectors equally weighted, with Healthcare, Consumer Discretionary and Consumer Staples leading the contribution
  • The 2YR and 5YR US Treasury bonds have returned 0.9% and 2% YTD and, since the 5YR was re-bought in June 2014, it has returned 3.3% so despite the nervousness of rising interest rates it has made sense to hold on to these positions. Should interest rates rise quickly, these positions will be exited, avoiding large drawdowns
  • A number of commodity positions, including oil, were exited during Q3 last year which has avoided a serious drawdown. Since exiting, the equally weighted commodity investment universe has returned -28% and the broader CCI index is in a drawdown currently of about -40%. This relative performance (versus a naïve or equally weighted benchmark portfolio) is perhaps more aptly termed “crisis alpha”. The naïve portfolio, which we do monitor for comparison, has returned -5% YTD and is currently in a drawdown of -10%
  • Although rebalanced monthly, trading and hence turnover has been rather low this year and in the case of the leveraged version, the dynamic leverage has not been changed either so far, giving an indication that the QLAB models are not overly sensitive to short-term volatility or range bound markets
  • The strategies are systematic, meaning rules based, and are published as indices, so there is no chance for behavioural or emotional biases to interfere with the carefully designed and robust investment process. This not only provides consistency in active decisions, but also diversification to discretionary processes which can sometimes overreact during times of high market uncertainty.

Looking forward, there will be an equity sector switch out of Technology and into Industrials but otherwise the portfolios remain unchanged. And, as we like to mention frequently, should there be a combined crisis of rising interest rates and falling equity markets, the QLAB models are ready to react and exit falling assets, thus avoiding large drawdowns. Finally, correlations remain rather low to various market, Hedge Fund and CTA indices, details available on request.
Happy 2nd Birthday to the Neue Helvetische Bank certificates tracking QLAB Asset Allocation and QLAB Dynamic Allocation! Traded on the SIX Swiss Exchange in CHF for 2 years now, they have delivered annualised returns of 4.6% and 10.2% respectively after fees, with realised volatilities of 3.6% and 10.2%.
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

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.