Ivy program

Letter to investors

April 2018

Market commentary

A few year-to-date price changes

Markets often react more to the noise around information than to information itself. For April, we have had our fair bit of it. Consider North Korea, which is now busy showing bouts of diplomacy towards its southern neighbor as well as towards the United States. If this “kindness” after the saber rattling proves genuine, what to make of the situation in Syria and Iran? Should we expect more boldness ahead for everybody to be able to claim victory later?

Aside from the media frenzy, the European Central Bank (ECB) has made some inconspicuous moves. It has reduced the size of its corporate sector purchase programme (CSPP), which now amounts to 700 million euros a week, that is, half its size beginning of the year. Is it an intentional endeavour by the ECB towards a complete halt of the programme in September, or a technical slow down? In any case, if the CSPP has helped tighten the credit spreads since 2016, then credit markets will become more sensitive to shocks going forward, without the ECB contributions.

On the other side of the pond, the Fed is on track with the normalization of rates, and markets do take notice with the 10 year Treasury rate having crossed the 3% rate from below end of April. This level is becoming more attractive for yield-seeking investors. We do believe however that there is more room to go on the way up for long term rates. High yield spreads, which were seen as a pocket of yield in fixed income those last few years, should normalize as well. The rate hikes cycle should bring more volatility to the sector and spreads will be back to their long term average. Usually during a hiking cycle, default rates do follow (they increase) with a lag of a few quarters. There is no evidence yet of higher default rates, but they deserve a closer look going forward: corporate debt is at its highest in the US, at 100% of the GDP.

In the commodity space, oil remains on its bullish trend on the wake of tensions in Syria and Iran. Brent now stands firmly above the important $70 threshold.

Coming to equities, April has been a month of dispersion globally: European markets have gone up, some markedly (like France CAC40), US equities have stalled and China has suffered 5% losses over the month.

FX wise, the dollar is firmer against the euro. The euro is back around 1.20 after having reached 1.24 to the dollar recently. The DXY dollar index is also back above 90, having climbed 4.5% in April.

The Ivy program has seen its allocation evolve significantly so far this year. We are currently allocating more to commodities than usual for instance. We believe that the flexibility and the diversity of exposures brought by the program are a must in the current uncertain market environment. As of end of April, the program is down 1.2% for the year, ready for any hurdle.

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
+0.99% US 10Y T-Note
+0.56% Sugar 11
+0.52% United States Oil Fund LP
+0.38% Gas Oil
Highest negative contributions
-0.77% FTSE 100
-0.54% SMI
-0.50% Palladium
-0.49% High Grade Copper

Performance and positions

The Ivy strategy yearly performance for 2018 stands at -1.2% as of end of April.

Gains in 2018 come from short positions on US rates, from various commodity positions (including shorts on sugar and live cattle and longs on gasoil and crude oil), from 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 some commodities (corn, copper, platinum).

A more detailed performance analysis is shown thereafter.

As per our convictions, we are now mildly bullish (almost neutral) on equities. For bonds, we still favor convertibles which benefit from an increased volatility. We are bearish on long term US, Canada and European rates. For real estate, we favor the ex US instruments, and we are now moderately bearish on US REITs.
In the commodity space, we are bearish on natural gas and sugar, while we are bullish on gold and crude oil.


Performance contribution of ETFs

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


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.


Focus on a trade

The sugar futures contract we trade is the most liquid: the number 11 raw sugar (sugarcane). Beet sugar represents about 20% of the global production while cane sugar has the largest share (80%).

Overall, sugar has a structural issue of overproduction which might linger for at least two more years. The International Sugar Organization (ISO) estimates the annual overproduction to be at 5 million tonnes (2.5% of global demand). Let us analyze some of the players involved. The European Union produces beet sugar (half of the global production) and is also a large importer of cane sugar. The production quotas that had been in place since 1968 were waived by the European Union in Dec 2017. This has had indirect effects on cane sugar prices (substitution effect). We also have had larger than expected production of cane sugar in India and Thailand, while global consumption is only marginally up. Brazil is a very important producer of sugar cane. Neither energy prices, nor the exchange rate of the Brazilian real has helped support prices. Indeed energy prices are on the way up, which incentivizes the production of ethanol in place of raw sugar.

The Ivy program has been able to trade the downward trend of that commodity, sugar n°11. The graph shows the total contribution of the position on the portfolio performance from the beginning of the year, with large gains this month. This market also brings an interesting diversification to the portfolio.


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 12.55% 5.19% 5.26% 6.81%
Volatility 10.48% 13.34% 19.35% 12.75%
Sharpe ratio 1.1 0.37 0.27 0.52
Max. drawdown 13.29% 21.66% 55.20% 26.59%
Correlation with Ivy - 0.54 0.26 0.12


The Ivy Deep Learning strategy is currently available as a managed account with a minimum investment size of 500’000 CHF/EUR/USD/GBP.
Ivy Deep Learning is also available through a certificate to be issued on May the 22nd with ISIN code DE000A2MDNL3.
Please contact us for more information.

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Interactive Ivy portfolio


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+41 22 342 47 01