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2 Nov 2015

QLAB Invest - Update October 2015

Multi-Asset Strategy Performance as of 31-October-2015

RISK (10Y)
QLAB Asset Allocation
QLAB Dynamic Allocation
Naive Market Portfolio 2.44% -5.21% -7.38% 0.18% 1.24% 5.60% 8.72% -26.37%

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


Although US equities rallied strongly during the month, it was not quite enough for the QLAB strategies to re-enter equities following the exit in August. US Treasury bonds fell in response both to this “risk on” effect and also to the expectation of a US rate rise in December. As a result the strategies posted a negative month and are flat for the year.

As the QLAB strategies are designed to manage risk more effectively than a buy-and-hold or benchmark driven approach, it is worth considering how a more passive investment would have performed over the recent past. For this purpose we follow the Naïve Market Portfolio which has the same investment universe held at maximum risk exposure, close to equally weighted. During the month the Naïve Portfolio performed strongly as equities rallied and many commodities also strengthened. However, YTD and over the last few years the Naïve Portfolio has been much weaker and is currently in a fairly deep drawdown.

The drawdown chart since summer 2014 is shown below. Losses in both QLAB Asset Allocation and the Naïve Portfolio commenced in July 2014 as commodity prices started to fall and the USD strengthened. The QLAB strategy exited commodities and FX in response to falling prices and the resulting relative performance can be seen indicated by the first arrow. The QLAB strategy recovered its losses by January 2015. More recently in August this year the US stock market corrected sharply with resulting impact shown by the second arrow. The QLAB strategy exited equities and de-risked into US Treasury bonds and this positioning remains today. The overall result is that the Naïve Portfolio suffered a worst drawdown of -13.18% whilst the QLAB strategy drawdown peaked at just -3.48%. The improvement is due to the reactive asset allocation process which is more effective at managing risk and in reducing the drawdowns versus a benchmark approach and this not only gives investors the peace of mind to stay invested, but also produces good relative performance over time.


The strategies remain defensively positioned in 2YR and 5YR US Treasury Bonds and the dynamic leverage in QLAB Dynamic Allocation remains off at x1 exposure. US equities are close to being re-bought which could occur if markets rally another few percent. The performance of Commodities and FX is also not yet sufficient for the models to allocate.

Download this Newsletter in PDF format by clicking here -> QLAB_UPDATE_OCTOBER_2015.pdf

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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.