Celebrating 1 year of our All Weather Strategy with FINNOMENA!
We’re in rough waters
Review: Gold was the winner in the past three months
Performance: All Weather Strategy has outperformed World equity
Weights: Increase Bonds to 25% and reduce Japan equity to 5%
Outlook: COVID-19 remains the biggest, but not the only concern
Regional Equity FVMR Snapshot
Celebrating 1 year of our All Weather Strategy with FINNOMENA!
The All Weather Strategy has now been up and running at FINNOMENA for 1 year
We’re grateful for all the investors that have put the trust in our All Weather Strategy
We’re also thankful for FINNOMENA offering us the opportunity to make the strategy available as a GURUPORT
We’re in rough waters
The opening of 2020 has undoubtedly been rough for equity investors
It’s not easy to sit still in the boat when the value of your portfolio falls massively in a day due to big drops in the stock market
That’s why we created the All Weather Strategy; equity has had the highest long-term return, but the ride is bumpy, and we aim to cushion the downside by reducing the equity allocation at times
Review: It was all about COVID-19
In our rebalancing in December 2019, we increased the target allocation of Japan to 25% from 5%, which hurt the return as Japan was the worst performer in the past 3 months
Japan’s GDP growth plunged in 4Q19, surprising the market, and the country has gotten closer to a recession
At the same time, Japan is the country with the fifth-highest number of confirmed COVID-19 cases in the world
Review: Panic in equities and pessimism in commodities
In total, we had a 65% target allocation to equity, US equity had a 25% allocation, and it was among the worst performers as well
Commodities besides precious metals performed relatively poorly in the past 3 months as well
Oil and industrial metals fell as the global growth outlook worsened
Review: Pandemic panic led investors to defensive assets
As COVID-19 has led to falling equity markets across the board and falling prices in many commodities, defensive assets, gold and bonds, performed well in the past 3 months
Gold price shot up in the past 3 months as panic spread in the markets, and it was the best-performing asset by far
Past 3 months: Equity fell around the globe, the All Weather Strategy outperformed
Past performance/ performance comparison relating to a capital market product is not a guarantee of future results.
AWS: Outperformed World equity by 3.4%
Gold: COVID-19 panic has pushed up the gold price
US: Strongest in the Developed world
Japan: Worst performer due to recession fears and COVID-19 outbreak
Since inception: The strategy has outperformed World equity
Past performance/ performance comparison relating to a capital market product is not a guarantee of future results.
The All Weather Strategy had a 45% equity allocation from inception to September 2019, and 65% after that
The high gold allocation has paid off recently as it has lowered the downside compared to an equity-only strategy
Since inception: The volatility of AWS has been about 65% of the volatility of World equity
The volatility of AWS has been about 65% vs. the volatility of World equity
25% bond allocation until September 2019 has contributed to the low volatility of AWS
As gold is uncorrelated to equity, it has dampened the overall AWS volatility
Since inception: Has AWS lost less when World equity has fallen
Past performance/ performance comparison relating to a capital market product is not a guarantee of future results.
A key feature of AWS is that it aims to lose less when equity markets fall
Looking at the 10 worst days of World equity since the inception of AWS, the has strategy has lost less on every day so far
Much due to low equity weight and gold allocation
Since inception: AWS has mainly outperformed when World equity has suffered big drops
Past performance/ performance comparison relating to a capital market product is not a guarantee of future results.
Largest outperformance has been in the months of Feb-20, May-19, and Aug-19 when World equity has fallen the most
Gold and bonds served as an effective hedge in the two months in 2019, and gold worked as a hedge in Feb-20 as well
Weights: Increase Bonds to 25% and reduce Japan to 5%
Equity down to 45%
US equity remains at high valuations, but this is similar to a neutral weighting for the US within our equity allocation
Gold and Bonds to serve as an effective hedge if equity markets continue to fall
Outlook: The market is sure the Fed is going to cut the rate at the March meeting
US gov’t debt and currency issues
Positive for gold, risk for US market
Market now expects rate cuts in the US to stimulate the US economy
Market-implied probability of 100% for the Fed to cut rates by 0.5% at the March meeting
Looking at corporates, fundamentals appear to have peaked which could lead to limited upside in equity
Outlook: It’s not all about COVID-19
COVID-19 development is going to overshadow the impact from the US-China “phase one” trade deal
Unrest in Hong Kong could worsen as protests seem to resume after a “Corona break”
Geopolitical tensions between US and Iran remain, the conflict in Syria continues with Turkey and Russia as main players at the moment
Outlook: How much worse can COVID-19 get?
In January, we said:
“If China can’t contain the coronavirus and it spreads to other countries, the global growth outlook could rapidly worsen”
It’s now evident that COVID-19 couldn’t be contained within China, and we’ve seen equity markets react to that
We also know that this virus outbreak has hit global GDP growth, the main question is: how much worse can it get?
Outlook: Global pandemic is possible, but not the only risk on the horizon
Geopolitical tensions and the COVID-19 outbreak are negatives for the global growth outlook and equity
If COVID-19 becomes a global pandemic, things can become a lot worse
There’s always a risk of overreacting in times like this, but even if a global pandemic is avoided, there are still geopolitical tensions, peaking fundamentals, and high valuations left to overcome
Outlook: Focus on limiting the downside
The All Weather Strategy aims to capture as much of the long-term equity return as possible, while also working to reduce the risk of an equity-only portfolio
As such, we are comfortable to overweight defensive assets; gold and bonds
Bond prices could be boosted by further rate cuts or larger-than-expected rate cuts
Gold has historically offered a safe haven in tumultuous times and is uncorrelated to equity over time
Regional Equity FVMR Snapshot
Fundamentals: US has the highest ROE
Valuation: Emerging markets and Japan trade at lowest multiples
Momentum: Massive price drops in the past 2 weeks
Risk: Lowest gearing in Asia Pacific ex JP and Japan
What you have learned
The Strategy has outperformed World equity in terms of return and at a lower volatility
‒Much due to heavy weights in gold and bonds
Increase our Bonds target weight to 25% and reduce Japan equity to 5%
‒Our primary aim is to limit the downside; therefore, we prefer defensive assets
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