Determinant portfolio: situation as of 01.06.2023

This month of May was marked by a fairly sharp decline in the MSCI Switzerland index (-2.7% in CHF), while the American stock market rose by 1.6% (in CHF). THE The determining portfolio was between the two, with -1.1%. The PF is still suffering from the strength of the Swiss franc, already seen in recent months. This is particularly the case with respect to the Yen. It is difficult to do anything good on Japanese stocks, when the JPY has weakened by 2.6% against the CHF, just in this last month.

Although this phenomenon is ephemeral, since currency fluctuations lose importance in the long term vis-à-vis the intrinsic valuation of assets, it is never pleasant to have to row against the currency tide. This requires generating insane performances, just to stay afloat. So I started to slightly reduce exposure to some third currencies, which should help in the future to be a little less affected by this phenomenon. However, there is no question of completely leaving aside investments abroad, since these contribute to the diversification of the portfolio.

Monthly performance in CHF

In detail, here is the performance of the PF and each of its strategies:

The QVM strategy, which represents a significant part of the PF, once again significantly dragged down the overall result. Japanese stocks weighed heavily in the balance. Not only did the yen melt against the CHF, but the stocks concerned also lost a fair bit of ground at the same time. Normally, when the currency depreciates, stocks rise, and vice versa. But in the inflationary environment in which we live, this paradigm tends to be reversed. We had already seen this with the CHF last month: while the latter strengthened, Swiss stocks rose simultaneously.

Despite the mixed results of the QVM strategy in recent times, I remain confident in it over the longer term. It has proven its effectiveness in the past, whether in research, in backtesting or in production. The double penalizing effect observed on the Yen this last month, could just as easily occur in the opposite direction soon.

There Blue Chips Strategy performed slightly better, but still posted a negative result. An important feature of this approach is that it mixes defensive and growth stocks, which are not very correlated, in order to minimize overall volatility. This dampening effect was particularly pronounced during the last month. While technology stocks soared (QQQ below), defensive stocks, such as consumer staples (VDC) and health care (XLV) significantly weakened. A relatively short-term backlash is likely. Watch this space.

THE Trading Auto Signal was slow to deliver its first call, but it finally did so at the end of the month, with a nice gain in just a few days of exposure. This line also benefited from the strengthening of the dollar against the Swiss franc for the rest of the month, when the position was cash. The Trading Auto Signal will be expected to gain a little more momentum in the coming months.

Finally, the ETFs managed in adaptive allocation performed well thanks to the Nasdaq, and despite the underperformance of alternative assets such as gold and cryptocurrencies.

Year-to-date performance in CHF

This gives us a year-to-date performance in CHF of 3.4% for the determining PF, with a volatility of 9% (annualized). The market is performing twice as well (S&P 500 at 7.2% and MSCI Switzerland at 7.8%). Even though the market volatility is also twice as high as that of the portfolio, this is a result that remains well below what is expected. As mentioned with the QVM and Blue Chips strategies, I expect a catch-up in the coming period, as the performance displayed is below the historical trend.

Determinant portfolio (01.01.2023-31.05.2023)

Portfolio (2010-2022)

Changes within the PF

Following on from the changes to the PF initiated in May, Two other assets bow out : frontier markets and high yield corporate bonds. Indeed, these two instruments, following the segregation of the PF into four distinct strategies, tended to drag down the overall performance in all my backtests.