Ivy program

Letter to investors

March 2018

Market commentary

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A few year-to-date price changes

The global economy keeps increasing at a good pace, with the US a good contributor to it. We hope a surging wave of protectionism will not derail this dynamics by impacting the price of imported goods and the confidence of the consumer. Tariffs on steel and aluminium have been increased in the US indeed and an additional list of products has been proposed, especially aimed at penalizing China. China itself is considering its own list of tariffs as a retaliation measure. It remains to be seen what is deliberate saber rattling as opposed to what will end up being implemented.

The new Fed governor, Jerome Powell, has now validated its first rate hike. He considers that the US economy should maintain its trajectory and does not want the Fed to risk being behind the curve. Analysts are increasingly pricing in four hikes this year.

In the fixed income space, we notice the upgrade of Greece by two notches, to B3 with a positive outlook. Contrarily, Latvia is under the spotlight amid an ongoing banking scandal and suspicions of money laundering. The factor to monitor more closely though is the Libor-OIS spread. It has kept increasing since the beginning of the year, and now reaches 58 basis points. We are still far away from the level it reached in 2008, but that spread can lead to a confidence crisis and liquidity issues, if it stays at a high level for a long time. For the time being, some technical reasons are put forward to justify this surprising spike in the Libor-OIS spread, among which the Fed balance sheet normalization and the issuing level of Treasuries which is much stronger this year to compensate the tax reform put in place in December 2017.

Corporate credit is not insulated from the recent bout of volatility, with some loss - still contained at the moment - in the Iboxx High Yield dollar indices. The Itraxx Crossover Europe index is more volatile; this credit derivatives index has risen over a short period of time from 10 to 259 basis points.

In Europe, the latest economical statistics seem to show a bit of deceleration. PMI indexes remain elevated but have been decreasing this year. Mood remains positive but a bit less so, with the IFO index in Germany indicating a lower positive business outlook for the next six months. A stronger euro can lead to more challenges ahead for exporters. Our convictions for European equity markets have been lower than for other countries recently and remain so for the time being.

Commodities keep benefiting from a weaker dollar. There are some exceptions though, like copper, which follows more closely equity markets fluctuations. Commodities do also tend to outperfom at the end of a business cycle. We are currently allocating more than usual in relative terms to commodities, including in energy and gold.

The Ivy program is currently allocated more defensively. As of end of March, performance stands at -3.8%. We do believe that the flexibility and diversity of exposures brought by the Ivy program is necessary in the current market environment, more undecided and volatile, and will prove its benefits over the remainder of the year.

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
+0.59% US 10Y T-Note
+0.35% Live Cattle
+0.26% Sugar 11
+0.19% United States Oil Fund LP
Highest negative contributions
-0.77% FTSE 100
-0.56% CAD 10Y
-0.51% SMI
-0.51% High Grade Copper

Performance and positions

The Ivy strategy yearly performance for 2018 stands at -4.5% as of end of March.

ETFs show a performance of -1.2%, while the longs and shorts futures are at -3.3%.

Gains in 2018 come from fixed income (short positions on US rates), from some commodities ((including short positions on sugar and live cattle and long ones on gasoil and gold), some equity positions (technology sector) and being 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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Focus on a trade

This month, we do take a closer look at one of our specific positions, namely a short position on live cattle, which we have in our portfolio through futures.

With a yearly loss of -5.7%, the prompt live cattle futures contract remains on its downward trend initiated end of last year, with an important price decrease having occurred over the past month. We have been positioned short on live cattle since early December, benefiting from that price action.

Interestingly this market also feels the impact of more recent macro events. Indeed there are growing beef supplies, and they need to find buyers. Part of the recent price action can be attributed to the risk of China imposing higher tariffs on beef imports coming from the US. This contrasts with the free trade agreement with Australia entered into force in December 2015 and which see tariffs on beef imports decreasing by 2% a year. They currently stand at 12% with a target for their entire suppression by 2024.

The below graph shows the overall return contribution of our live cattle position to our portfolio, which exemplifies how this type of diversifying market can bring value.

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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 12.47% 5.19% 5.25% 6.97%
Volatility 10.46% 13.36% 19.36% 12.76%
Sharpe ratio 1.1 0.37 0.27 0.53
Max. drawdown 13.29% 21.66% 55.20% 26.59%
Correlation with Ivy - 0.54 0.26 0.13

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