Ivy program

Letter to investors

February 2018

Market commentary

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A few year-to-date price changes

How stressful it is to change therapists! This is how investors might have felt on the 22nd of February, when they discovered the minutes of the latest Federal Reserve committee. The governors have judged that an accelerating growth might require a stronger than anticipated rate hike. The consensus has now shifted to four interest rate increases in 2018, with possibly one more in the pipeline!

Investors have been shaken out of their complacency. The anxiety had started to diffuse a bit earlier, and it turned out to be somewhat justified. The “short vol” strategies, favored by so many managers, have suffered large losses, and some dedicated vehicles were even driven into liquidation. Despite the correction in equity markets and the associated de-risking, many analysts perceive no change in the fundamentals, and argue that this is a buying opportunity. We are not as sure however. The new Fed chair seems to exhibit a higher tolerance for volatility, and the notion of a “Fed put” – where the Fed acts as soon as the equity markets tumble – becomes questionable.

In the fixed income area, two opposite tendencies have been at play in February. On the one hand, the structural rise in interest rates, that we have been experiencing for a few months, is still in progress. On the other hand, as it is often the case when so called risky assets get bashed around, bonds are sought after, in a defensive and instinctive reaction. All this led to more volatility, there as well. In Europe, the Italian elections have elevated the political uncertainty, as the new voting system has not succeeded in bringing more stability. We’ll keep an eye on peripheral Europe rates as a consequence.

FX wise, the dollar remains on its downward trend, initiated more than one year ago. This is a tailwind for commodities, such as WTI and Brent crude oil, for which 60$ a barrel seems to constitute a new floor. Natural gas goes the opposite direction with its prompt contract retracing down all the January gains.

The Ivy program has benefited from consistent gains from the equity markets over the past months. We still hold bullish convictions in the US equity markets, although in an attenuated way, as the volatility spike led us to adjust our exposures. As of end of February, the Ivy program is down 2.9% year-to-date.

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.

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Ivy program YTD

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Highest positive contributions YTD
US 10Y T-Note +0.97%
Vanguard Information Technology +0.29%
E-mini Nasdaq 100 +0.29%
E-mini S&P 500 +0.22%
Highest negative contributions YTD
FTSE 100 -0.72%
SMI -0.51%
Corn -0.43%
High Grade Copper -0.39%

Performance and positions

The Ivy strategy performance stands at -2.9% in 2018, two months into the year.

ETFs show a performance of -0.7%, while the longs and shorts futures are at -2.2%.

Gains in 2018 come from fixed income (short positions on US rates) and various other positions such as short sugar, long US equities (S&P500 and Nasdaq) – even though February has cancelled most of the gains on that asset class – and long convertible bonds.

Losses during the year come for the most part from specific futures positions on equity indices (Footsie100, SMI), and on commodities (corn, copper, platinum).

A more detailed performance analysis is shown thereafter.

As per our convictions, we remain bullish on US equities at a mid term horizon for the time being, although our conviction is fairly reduced, now at about 50%, and we are now neutral on European equities. Sector wise, our lowest convictions are in the telecommunications and utilities sectors.
We remain short on long term US rates and Canadian rates, and are now short UK rates as well.
For real estate, we favor the ex US instruments, and we are now moderately bearish on US REITs.
In the commodities space, we are bearish on corn, natural gas and sugar, while we are bullish on copper, gold and crude oil.

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Performance contribution of ETFs

The graphs (one by asset class) show the contribution to performance of ETFs since January 1st 2018 (in USD).

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Performance contribution of futures

The graphs (one by asset class) show the contribution to performance of the futures since January 1st 2018 (in USD).

Risk contributions

Risk contributions (component VaR 95% 1-day)

The graphs show how a position contributes to the combined portfolio VaR (Value at Risk). A positive number indicates that the position generally moves in the same direction as the overall portfolio. A negative number means the opposite, indicating that the position diminishes the overall portfolio risk level.

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

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Key points and benchmarking

Strengths of the Ivy program
Deep learning Swiss made
Tail risk protection & crisis alpha Daily liquidity
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Metrics Ivy 12 SG CTA Trend Index S&P500 20Y Treasury Bond
Annualized return 12.51% 5.23% 5.44% 6.85%
Volatility 10.19% 13.37% 19.36% 12.78%
Sharpe ratio 1.1 0.37 0.27 0.52
Max. drawdown 13.29% 21.66% 55.20% 26.59%
Correlation with Ivy - 0.56 0.26 0.14

Conditions

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.

1%
Management fees
10%
Performance fees

Want to know more?

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Discover Ivy in a unique and interactive way by clicking on the below link:

Interactive Ivy portfolio

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And contact us

+41 22 342 47 01