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3 Dec 2012

Performance figures

November 2012       0.45%
YTD 2012                   2.80%
1 Year                         3.44%
2011                           4.18%
Since inception        3.64% (since 1-Jan-11, annualised)
Risk (volatility)          5.16% (since 1-Jan-11, daily data annualised)

Is anyone else intrigued why the volatility of equity markets is currently so low? For example US equities on a 1YR daily basis have a volatility of around 12% versus 18% for 2YRS and around 20% long term (15 years, daily data). This is not true for commodities where based on the CRB CCI index short term and long term volatility are both about 13%.

This makes the recent equity drawdown doubly worrying, in November US equities lost about 5% then recovered to be flat for the month. The drawdown since this year’s high reached in September was about -7%. I think this just reminds us that markets are going to remain rather sensitive to economic headlines as views seesaw between doom and hope and that now is not the time to become too aggressive on portfolio positioning.

So how do quantitative strategies behave in such an environment? Well if you read the Financial Times, rather poor you would think. On 21st November the article entitled “Wrong sort of volatility hits trend followers” highlighted the difficulties of some of the largest CTA-style hedge funds are experiencing. The HFRX Systematic Diversified CTA Index supports the article with a YTD performance of -8.1% as of 29-Nov-12.

Spectrum is quantitative and fully systematic, yet returned +0.45% for the month bringing YTD performance to +2.80% and annualised since inception to +3.64%. So what’s the difference between Spectrum and strategies you might find in the HFRX index mentioned? Well we would not call Spectrum a pure CTA or trend follower. It does not make use of shorting or leverage and is thus rather conservative in its approach. The true benefits come from taking a portfolio approach rather than considering assets in isolation. By treating the whole opportunity set as competing, positive trends driven by investor herding do emerge and can be exploited, but at the same time the portfolio tends to remain rather diversified and so it can weather “the wrong sort of volatility”.

The asset allocation for the coming month remains the same
  • Equity allocation at 26% with positions in Cyclicals, Healthcare, Financials and Telecomms
  • Commodity allocation remains at zero due to continued poor relative performance as an overall group
  • FX exposure at 12% with positions in CAD, AUD, NZD and GBP
  • Fixed Income exposure to 2YR and 5YR US Treasuries at 15% and 45% respectively with 2% in cash.
See overview SPECTRUM-IDX-OVERVIEW_30NOV2012.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.