Determinant portfolio: situation as of 01.01.2024

What a paradox this December. On the one hand, the S&P 500 is frolicking around its historical records, while on the other the dollar is collapsing, particularly against the Swiss franc. The latter, moreover, is also breaking records against other currencies. The last time this happened, it prompted the SNB to establish a floor rate against the euro.

Today, we are obviously no longer in the same mood, but it remains to be seen whether this will push it to relax its monetary policy somewhat. Because here, we are really very high. In 2023, the CHF thus gained a whopping 5% against the euro, 10% against the dollar and even 16% against the yen.

Under these conditions, naturally, a Swiss investor starts with a major handicap. Like a convict, he drags himself along with a ball and chain. This has been the case throughout this year, with this paradoxical impression already mentioned of winning and losing at the same time.

Monthly performance in CHF

The portfolio, with a gain of 1%, achieves a fairly good overall result. It is on a par with the S&P 500 (in CHF), but remains below the Swiss market (2.6%). Here again, we feel this ambivalent feeling, with on the one hand the feeling that we could have done better, but on the other hand the feeling that, taking into account the unfair rules of the game, we have finally obtained a more than correct score. With a spectacular rise of 4% of the franc against the dollar, in this last month alone, the performance could just as well have been negative. This is more than double the average monthly fluctuation between the CHF and the USD since 1999!

It should also be noted that the lower result than the market is also explained by the cash share which fluctuated between 20 and 36%. Fortunately, this was entirely denominated in CHF. While liquidity somewhat limits the celebrations, it also helps to reduce overall volatility, as we will see later. In addition, it gives us a few extra cartridges to use if necessary. This is good, I have a few stocks under the radar for the beginning of next year.

There QVM strategy This time it played the role of locomotive, with titles climbing sharply, even up to 10%. This approach finally shows what we have the right to expect from her. It was about time, because during this year she has rather struggled. As I mentioned last month, if this strategy goes through tough times, it always ends up making up for it in the long run. Let's hope that this time the sauce takes hold for good and that it bodes well for 2024. In any case, I will start to strengthen it somewhat from January.

There Blue Chips Strategy, with 1.7%, has had a nice performance this December. Over the whole year, although it has been introduced along the way, it is among the best approaches.

After an incredible November, the Trading Auto Signal falls into line in December, with a small gain (0.4%). For once, it does less well than all the other approaches, but still ends in positive territory. It must be said that it remained cash for a very large part of the month, due to lack of signal. The gains in dollars made during trading days were also pulled down by the strength of the CHF/USD. As mentioned above, the cash portion was fortunately invested in CHF the rest of the time. This significant allocation not invested during certain periods helps to keep overall volatility under control. The TAS has had a good year in 2023, with positive, regular results and low volatility.

Finally, the TAA strategy achieved a decent result (0.7%), thanks to the surge in cryptos (nearly 10%), which more than offset the decline in gold. I like this approach because of the lack of correlation it displays with the stock market, which also helps reduce overall volatility. As the TAA has just been modified, it is difficult to draw up a balance sheet for 2023.

Year-to-date performance in CHF

This gives us a performance in CHF since the beginning of the year of 5.4% for the determining PF. This is a fairly decent result, but insufficient in relation to the performance expected for this PF and in relation to the objectives of financial independence. It must be said that the rise of the franc against the dollar (+8.6%) had a very strong impact on overall performance throughout the year.

The transformations carried out during the year, with the introduction of Trading Auto Signal, the Blue Chips strategy, Tactical Asset Allocation, all in separate and autonomous strategies, should allow for improved results next year. In any case, we have already seen positive effects since these changes. This will be all the more true if the Swiss franc stops soaring, or better (but we no longer dare to hope for it), deflates.

We are also somewhat below the Swiss market (+7.6%). However, helped by its lower volatility, the portfolio still maintains a much better Sharpe ratio than the market (which measures profitability in relation to risks). In other words, With equal risk, the PF performed better than the market.

Determinant portfolio and MSCI Switzerland index since the beginning of the year (performance in CHF)

A quick word on volatility

As long as an investor has a very good risk tolerance AND is in the capital accumulation phase, the volatility of his investments is not essential. He can thus accommodate a fairly significant variation in his investments, since what is important to him are the long-term results. On the other hand, an investor who freaks out at every jolt in his assets risks making bad choices. Above all, the volatility of investments becomes essential when one is in the phase of withdrawing capital (i.e. when one becomes an annuitant). Indeed, too great a variation in the latter, even while it is being tapped, can lead to pure and simple bankruptcy.

Therefore, an investment strategy must at least partially account for volatility. Volatility is not as important as profitability in relation to financial independence, but it still counts in the equation. I have quantified this phenomenon in the Determinants of wealth. As I mention in this work:

significantly lower volatility will be required if we are to compensate for a
slightly lower performance (annual profitability of 6% instead of
7% for example will have to be compensated with a volatility of 13% instead
of 17%).

By chance, this example is quite close to the portfolio result, which shows a result of 5.4%, versus 7.6% for the market. However, its volatility is significantly lower than in this example, with 9%, versus 16% for the MSCI Switzerland index. From this point of view, we are therefore more than on target, even if the expected profitability of the portfolio should be higher.

For next year, barring a stock market crash, I even expect slightly lower volatility., thanks to the adjustments made in recent months to all strategies.

Performance since 2010 in CHF

Since its launch in 2010, The portfolio still maintains a slight lead over the Swiss market (7.4% annual average against 6.5%).

MSCI Switzerland portfolio and index since 2010 (performance in CHF)

Portfolio Update

The determining portfolio will be updated on January 2nd in the members section. Some position changes are already planned.

I take this opportunity to wish you a wonderful and happy new year 2024.