Modelportfolio February 2014

The modelportfolio generated a positive return of 0.51% in February versus a more significant positive return of 2.35% for the benchmark, a relative performance of -1.84% as such.

Our modelportfolio has generated a positive return of 0.38% for the first two months of this year versus 0.59% for the benchmark. As such, the benchmark has generated some 0.2% better returns than of the model portfolio.

The negative deviation stems from a very weak performance from the selected East Capital Russia fund which is included in our equity selection. This fund has experienced a major negative return this year, influenced by a very slow Russian equity market also in the beginning of this year. By the end of February, the fund had generated a negative return of some 16% so far this year, impacting our modelportfolio with a negative 0.6%-point. We have decided to remove East Capital Russia from our modelportfolio, with further explanation below.

We have decided to implement some changes to our modelportfolio:

  • Alken European Opportunities (Alken) has performed very well. However, the fund executive has decided a soft-close and implemented a EUR 250,000 cap on daily new inflow. Even though we still like the fund, we find this somewhat challenging for our model portfolio to keep a fund recommendation that has high restrictions on inflow. As such, Alken is removed from our modelportfolio.  
  • J O Hambro’ European Select Values Fund (JOCHM) will replace Alken. JOCHM is an all cap Pan European equity strategy fund with a disciplined Value approach. The Fund has a bottom-up investment process that combines an absolute value discipline with a preference for companies that generate sustainable, superior economic returns. The investment strategy is to focus on companies with high free cash flow yield combined with a selection bias tilted towards companies that have established superior economic business models. JOCHM typically consists of 40-50 companies and has no sector and country constraints. 

  • Ashmore Emerging Markets Debt has not been performing as expected and has been a part of our model portfolio since August 2010. In the emerging market bond space, history shows that we will find the lowest risk in emerging market sovereigns (HC), but we believe there are other managers more likely to create alpha in the future, therefore Ashmore is removed from the portfolio. 
  • BlueBay Emerging Market Bond Fund will replace Ashmore. BlueBay is a trusted system that we already use for our investment grade and high yield exposure. The fund invests predominately in fixed income securities issued by emerging market countries in hard currency. BlueBay does their own fundamental analysis and does not rely on rating agencies, but rather seeks to generate excess return from superior country and issue selection. The fund is benchmark aware, but not benchmark driven - meaning that they will not invest in a security where they have concerns regardless of benchmark positioning. The fund has a key emphasis on liquidity when setting up their portfolio. 

  • SPDR S&P 500, has performed very well and has added good value to our portfolio. However, we now see that the US market is getting increasingly more expensive and that we can get more value for money elsewhere; as such we will remove SPDR S&P 500 from the portfolio.
  • East Capital Russia had by the end of February generated a negative return of some 16% so far this year. The Russian market has not been in favor for a while and with the recent turmoil and insecurity for Russia and the region in general we believe that better value can be found elsewhere, hence we have decided to remove East Capital Russia from our portfolio.
  • TreeTop Global Opportunities has been one of the absolute best performing global funds over the last 5 years, outperforming the MSCI All Country World Index by 38,1%. Manager Peter Robson believes that alpha can be found in the early stages of the business cycle, meaning that this fund will be an early buyer and early seller. The diversified portfolio typically consists of 50-70 shares. The fund is benchmark unaware and will invest in all regions and market caps where opportunities arise. 

Finally, we still put a lot of attention on inflation and fiscal stimulation issues, well aware of that at one stage these two factors might be the catalysts for an equity markets brutal downturn. That said, we do not expect any massive (20%+) collapse in equity markets in the foreseeable future. However, we want to raise a “red flag” that a world economy without monetary stimuli combined with inflation above a certain level is a very unattractive cocktail for equity markets.  

 

Our Modelportfolio after implemented changes:

InvestmentsPortfolio
Equities  

J O Hambro’ European Select Values Fund

10,0%
Fidelity Asian Special Situations 10,0%
SEB Nordic Focus 10,0%

TreeTop Global Opportunities

10,0%
Sum Equities 40,0%
   
Fixed Income  
Norwegian High Yield Bonds 25,0%
BlueBay Emerging Market Bond Fund 10,0%
Bluebay High Yield Fund 10,0%
Muzinich Short Duration High Yield 10,0%
Bluebay Investment Grade Fund 5,0%
Sum Fixed Income 60,0%

 

Performance200820092010201120122013YTD
SEB Modelportfolio -6,73%  26,55% 6,45% 0,17% 12,00% 13,01%  0,38%
Benchmark -12,77% 11,92% 6,01% -1,06%  8,23% 15,27% 0,59%
Outperformance 6,04% 14,63% 0,44% 1,23% 3,77% -2,26% -0,21%
MSCI World -30,06% 26,51% 10,57% -4,96% 16,42% 29,57% 0,91%