Determinant portfolio: situation as of 01.09.2022

THE determining portfolio continues to hold up, despite a fairly choppy market. Performance since the beginning of this year thus amounts to -0.4% compared to -16.4% for the MSCI Switzerland index. Volatility also remains at a correct level, with 10.6% compared to almost 19% for the aforementioned index.

As promised, here is the continuation of the new features introduced in August :

US High Yield Corporate Bonds

The key portfolio does not include high-quality corporate debt securities (ETF: LQD), as they tend to drag down performance, even in tactical asset allocation. Moreover, they fail to significantly reduce risk, as these securities are partly correlated to stocks.

As part of the various backtests carried out on assets this summer, I did however put my nose to corporate bonds at high efficiency. Unlike investment grade bonds, these are rated below BBB- by the rating company Standard & Poor's. In exchange for higher risk, these securities offer a more attractive income than their investment grade counterparts. The current yield of the HYG ETF, which represents this asset class, is therefore 4.61%. The cherry on the cake is that the payment is made monthly (like TLT or IEF).

Moreover, the maturities are shorter than those of investment-grade corporate bonds or medium- and long-term Treasury bills. This means that they are less vulnerable to rising interest rates.

Unlike high-grade corporate bonds, high-yield loans perform well in tactical asset allocation. It is even possible to associate a moving average of its price with the US unemployment rate, which is quite logical given their correlation to stocks (0.73). Moreover, despite this fairly significant correlation, the volatility remains at a more than correct level (< 10%).

Finally, let us note thatThe correction that began at the beginning of this year makes high-yield bonds more attractive, even if they are not yet cheap (the spread with blue-chip securities is still below the historical average).

Gold

Still, in line with the changes made in August, I made some small adjustments to the gold position. After several backtests between the GLD and AUCHAH ETFs, I managed to obtain slightly better results with the variant proposed by State Street Global Advisors (even taking into account exchange rate variations). I will therefore favor GLD in the future. Of course, if you prefer to use AUCHAH, you can continue to do so.

A new asset, still in the testing phase

I was hoping to be able to introduce all the changes by September. Unfortunately, I was unable to finalize all the tests concerning a new asset that seems particularly interesting to me in the current times. In the meantime, an ad hoc line appears temporarily at the bottom of the portfolio, just before reserves and liquidities.

As you can see, the indicators concerning it are promising. If my latest tests are conclusive, I expect to be able to introduce this new asset as early as October. Otherwise this line will disappear. I will keep you informed in any case.

Happy recovery to all!