Ivy program

Letter to investors

November 2017

Market commentary

A few year-to-date price changes

The context of accelerating growth in most major countries has continued to provide tailwinds to global equity markets in November. Only Europe seems to stall a bit this month, penalized by lingering uncertainty around the conditions of the Brexit and the difficulties in forming a government in Germany.

The United States exhibit an annualized growth rate of 3.3% for the GDP in Q3 2017 despite Harvey and Irma hurricanes. The S&P500 and Nasdaq equity indices have scored respectively a +2.8% and 2.2% gain over the month in sympathy. Looking forward to December, the US Senate has passed a sweeping tax reform and a bill could now be signed in the coming weeks. The corporate tax rate would decrease from 35% to 20%, which should give room for a continuation of the bull unabated move, at least until the effective signing of the bill. Afterwards the interplay between moves in the dollar, in interest rates and in equities should worry a bit more market players: we should prepare ourselves to a more decisive upward move in rates and in inflation as 1 trillion will be added to the public debt, and as the Fed changes leadership. Eyes will also be on the dollar.

Geopolitics fall mostly by the wayside, with smaller or shorter market reactions to any North Korea related news. The equity markets of Japan and Hong Kong are up in November again: +3.2% and +3.3% respectively. The Japanese economy is now entering into its seventh quarter of expansion, driven by a strong export demand (+6%), notably in the automotive and steel industries.

The European equity indices do beg to differ as they end up the month of November in the red: -2.4% for the Eurostoxx50 for instance. Germany remains a question mark politically and Angela Merkel has failed for now to find an agreement to form a government.

In credit markets, volatility remains subdued and spreads tight. Managers tend to look at structured products as a way around, but the ratio of expected gains to risk taken is not overwhelming.

Regarding commodities, coffee has been an outlier on the positive side (+5.8% over the month) with rains in Colombia likely to lead to a 30% contraction of supply. The oil complex is also strong, with WTI oil up 5.5% in November. It is expected that the extension of the production cut deal by OPEC and Russia until end of 2018 will remain supportive of prices in the coming months.

For a more measured view of economic risks going forward, we should maybe pay attention to the People's Bank of China, the Chinese central bank. Its president Zhou Xiaochuan is about to retire, probably by March 2018, and he keeps warning of high debt levels and leverage in the Chinese financial system. The overall debt is close to 300% of GDP and companies are increasingly dependent on borrowing. The PBoC will need to navigate carefully: the Chinese shadow banking size is estimated at $8.5 trillion.

The Ivy program continues to benefit opportunistically from the markets with the best potential, equity and oil notably, which brings the overall year-to-date performance to +20.9%.

Our convictions

Market convictions and active views
The graphs show our current market convictions from -100% (maximum bearish) to +100% (maximum bullish).
For each asset class, our highest and lowest three convictions are shown.


Ivy program YTD

Highest positive contributions YTD
E-mini Nasdaq 100 +3.23%
E-mini S&P 500 +3.16%
Palladium +2.18%
VGT +1.56%
Highest negative contributions YTD
Platinum -1.75%
CAD 10Y -1.32%
Henry Hub Natural Gas -0.62%
Gas Oil -0.47%

Performance and positions

The Ivy strategy performance stands at +20.9% in 2017 as of end of November.

The collateral constituents, made of ETFs, represent approximately 60% of those gains, and the longs and shorts on futures 40%.

Yearly gains come from the most part from equity markets and some commodities such as palladium, copper and softs. Most ETFs positions are in the black, which includes real estate and rates products as well.

Losses come from specific futures positions, on long term Canadian rates, platinum and natural gas.

A more detailed performance analysis is shown thereafter.

As per our positions and convictions, we remain bullish on equities. Our lowest convictions are in the energy and telecommunications sectors, as well as some European markets (UK notably).
We have decreased our convictions in emerging markets, be they equity or bonds.
In the fixed income space, we favor convertibles and corporate bonds. We remain short on long term US rates, neutral on Canadian rates and German bunds, and long on UK gilts.
For real estate we favor ex US real estate.
In the commodities space we are bearish on corn, natural gas and platinum, while we are bullish on copper, Brent crude oil and palladium.


Performance Contribution (collateral)

Equity ETFs represent the largest share of the gains made in the collateral in 2017.

The graphs (one by asset class) show the contribution to performance of ETFs since January 1st 2017 (in USD).


Performance Contribution (futures)

The graphs (one by asset class) show the contribution to performance of the futures since January 1st 2017 (in USD).

Risk contributions

Risk contributions (component VaR 95% 1-day)

The graphs show how our positions contribute to the combined portfolio VaR (Value at Risk). A positive contribution means that the position goes in the same direction than the risk of the overall portfolio. A negative contribution contrarily tends to diminish the overall portfolio risk level.

For each asset class we are showing the largest and lowest three contributions to risk.


Focus on US equity sectors

We analyze this month the performance of different equity sectors and our relative convictions about them. The performance is strong this year for US equity markets overall and our program has remained well positionned all the way. However, by looking more closely at the different constituent sectors, we can draw a few conclusions.

Broadly speaking, the relative performances of the different sectors are aligned with a late mid-part of a classical business cycle, with a low dispersion and the technological sector leading the pack. The energy sector is nonetheless off the averages as it has underperformed this year, despite being usually an outperformer in the mid and late parts of a business cycle. We are now turning neutral to this energy sector and the telecommunications one, after having been bearish of both this year.

The dispersion of performances has increased during the month of November, which includes a marked bounce in consumer staples, financials, industrials and telecommunications. It will be interesting to monitor going forward that evolution as an hint of an entry into the late stage of the current business cycle. Under such a scenario, some sectors are traditional outperformers: materials, healthcare and energy, with utilities and consumer staples also doing well.

The reactive and adaptive approach of Ivy enables to implement the required rotations in time, be they mandated by tactical, mid-term (as linked to the business cycle) or long-term changes. As such, our convictions on the energy, telecommunications and consumer staples sectors could keep evolving in the coming months.


Key points and benchmarking

Strengths of the Ivy program
Deep learning Swiss made
Tail risk protection & crisis alpha Daily liquidity
Metrics Ivy 12 SG CTA Trend Index S&P500 20Y Treasury Bond
Annualized return 12.64% 5.44% 5.34% 7.25%
Volatility 10.19% 13.33% 19.39% 12.80%
Sharpe ratio 1.1 0.38 0.27 0.55
Max. drawdown 14.07% 21.66% 55.20% 26.59%
Correlation with Ivy - 0.55 0.27 0.13


The Ivy strategy is currently available as a managed account, and will soon be available as a UCITS fund.
Minimum investment is 500’000 CHF/EUR/USD/GBP.
Please contact us for more information.

Management fees
Performance fees

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