Saxo Stronghold USD – Q4 2019 commentary

Instruments traded
ETFs
Asset classesGlobal equities and bonds
Investment styleQuantitative portfolio management
Quarterly return+0.5% (net of fees)
Annualised volatility (since inception)5.1%

Market overview

While the third quarter of 2019 offered volatility as the US-China trade tensions escalated, the fourth quarter marked a ceasefire with a Phase-One deal. The trade deal, combined with improving economic activity numbers, lifted equity markets in general. Despite being exposed to equities, the portfolio did not get the full benefit as the exposure was mainly in minimum volatility stocks that declined somewhat as the relative safe-haven in equity markets was no longer needed by investors.

During the fourth quarter, the Stronghold USD model reduced its exposure to minimum volatility stocks to zero percent and generally increased its exposure to equities. As expected, returns across equities improved and volatility declined further. 

The portfolio’s total return in 2019 ended at 9.6% after fees, which was worse than the benchmark that gained 11.2% in 2019. In the early months of 2020, the Stronghold USD portfolio is off to a good start, but with the coronavirus situation developing, the quarter could become quite volatile.

 

Portfolio performance

Oct0.0%
Nov+0.1%
Dec+0.4%
1 Year
+9.6%
Inception (01.07.2017)
+17.8%

(Performance is net of all fees)

  • The best performing position in the portfolio has been the exposure to US large cap equities, which contributed more than 1.4%-pts over the quarter.

  • The exposure to 7-10 year government bonds was the largest drag on portfolio performance over the quarter with -0.5%-pts. This exposure, however, ensures that risk in the portfolio is kept at a relatively low level.
     
      

Changes to allocations

The main change in the Stronghold USD portfolio over the quarter was the shift in equity exposure from minimum volatility to large cap equities and a small exposure to emerging market equities and international equities. The shift to ETFs with a higher risk was carried out due to a lower estimated risk in the market, combined with an increased estimate of the reward-risk ratio. The overall allocation change is shown below.

Portfolio weights (%)

Asset class
Asset sub-class
As of 02-10-2019
As of 03-01-2020
CreditUS Corporate IG
US Corporate HY
EM Bonds (USD)
US MBS
17.0
0.0
0.0
15.8
18.0
0.0
0.0
11.1
 EquityUS Large-cap Equities
US Small-cap Equities
International Equities
EM Equities
US Minimum Volatility
US Momentum
US REITs
1.0
0.0
0.0
0.0
29.9
0.0
5.1
 30.3
0.0
5.0
4.8
0.0
0.0
0.0
Government
US Govt 1-3Y
US TIPS
US Govt 7-10Y
0.0
0.0
30.0
 0.0
0.0
30.3
CashCash
1.20.5

Outlook

OECD’s global leading indicators have been revised and now show that the global economy went from contraction to recovery phase in September as monetary and fiscal stimulus arrested the economic slowdown. This has probably avoided a global recession, but the recovery is still fragile and the latest coronavirus outbreak in China poses a critical risk to the global recovery as China is 20% of the global economy and basically the world’s manufacturing facility.

As economic activity has improved, equity markets have delivered positive returns. Volatility has also declined, and as a result, the Stronghold model has increased its equity exposure during the fourth quarter from 36% to 40%. If economic activity continues to expand, the portfolio should experience higher returns amid this increased equity exposure.

The key risk to our outlook is the Chinese coronavirus, which comes with many unknowns and nonlinearities. Higher interest rates will impose losses on the bonds in the portfolio, but the extent of the losses depends on whether rising rates come from inflationary pressure or improving economic activity.

This material is provided for marketing and/or information purposes only. Fee charges mentioned herein are subject to change – you may find the latest updated pricing information on the description page for the respective portfolios. None of the information contained herein constitutes an offer (or solicitation of an offer) to buy or sell any currency, product or financial instrument, to make any investment, or to participate in any particular trading strategy. Saxo Capital Markets does not take into account your personal investment objectives, specific investment goals, specific needs or financial situation and makes no representation and assumes no liability to the accuracy or completeness of the information provided here. The information and commentaries are not intended to be and do not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort offered or endorsed by Saxo Capital Markets. Any expression of opinion (which may be subject to change without notice) is personal to the author and the author makes no guarantee of any sort regarding accuracy or completeness of any information or analysis supplied. Although every endeavour has been made to ensure that our trading platforms are secure and reliable, please note that as with all facilities and systems, our trading platforms may be vulnerable to temporary disruption or failure. If you undertake transactions on an electronic trading system, you will be exposed to risks associated with systemic failure, i.e. failure of hardware and software. 

See the full Managed Portfolio Disclaimer for more information. Please also consider our Risk Warning and General Business Terms before trading with us.

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.