MANAGER NOTES: SOME LOSE, WIN ENOUGH
Traducido Federico Dilla
Dear participant,
If I had to summarize in a clear, direct sentence without technicalities and Anglicisms, philosophy Cycle Management FI, would this: lose little; earn enough. This idea nicely summarizes the objectives we pursue, and to deepen this concept let's start by defining "little" and "sufficient".
The losses should be recoverable, and the sooner the better. It is the only way to operate the famous compound growth favors both an investment portfolio over time (in this Quarterly Report Metagestión explain it very well). Managing Falls "peak soil" in risky assets (Stock) is central to this goal of "lose some" limit drawdowns and recover soon.
With "make enough" I mean the remuneration of risk you are assuming. We must be able to measure the risk-adjusted returns of different investment alternatives and capture the excess return per unit of risk assumed. In our opinion, submit a return of 50% + in one year "right", it could have been 30% if the "not-have-right" would be out of the management parameters "lose small and win enough" . In our approach does not try to "hit" and maximize a good year. We seek to minimize losses in the event of mistakes and capture the positive returns of long-term assets. And we encapsulate this philosophy in its own methodology, we define Adaptive Diversification, with which we are managing the fund in an extremely complex environment. Let's see how things are.
October started with a last quarter where we could see its third recession in six years in the euro area. And we start a quarter where the Federal Reserve will stop buying assets (end of Quantitative Easing). Result: bad news for equities, for the dollar and good for regular bonds. Against this backdrop, the nervousness is spreading the market. And it seems that will intensify in the coming sessions. With a recession "around the corner" in the euro area (or at least a serious stagnation) and a program of asset purchases (QE) that ends at the Fed, investors are opting to replicate positions in riskier assets (stock, high yield). A reasonable decision considering the valuations were supporting these assets expected:
Accelerating global cycle and benefits.
An ECB taking over from the Federal Reserve with a program of asset purchases (QE) very similar.
Neither of these two conditions should support (i) PER cycle highs and (ii) IRR of high yield in minimum cycle are being met. The adjustment in prices (downward) could be extended in the coming weeks.
And the negative impact on FI Cycle Management? Limited in this rough start of the month, as advanced in The Monthly Newsletter Quick laNota this week, we started with 40% of the fund in cash. So far in October, the net asset value of the fund has lost 0.88% compared to -6.84% for European equities or + 0.21% of the public debt UME.
Traducido Federico Dilla
Daniel Suárez, fund manager en Gestión del Ciclo FI (Gesiuris Asset Management)
http://www.linkedin.com/redirect?url=http%3A%2F%2Fwww%2Eadvisorygdc%2Ees%2Fapuntes-del-gestor-perder-poco-ganar-lo-suficiente%2F&urlhash=GlCq
Dear participant,
If I had to summarize in a clear, direct sentence without technicalities and Anglicisms, philosophy Cycle Management FI, would this: lose little; earn enough. This idea nicely summarizes the objectives we pursue, and to deepen this concept let's start by defining "little" and "sufficient".
The losses should be recoverable, and the sooner the better. It is the only way to operate the famous compound growth favors both an investment portfolio over time (in this Quarterly Report Metagestión explain it very well). Managing Falls "peak soil" in risky assets (Stock) is central to this goal of "lose some" limit drawdowns and recover soon.
With "make enough" I mean the remuneration of risk you are assuming. We must be able to measure the risk-adjusted returns of different investment alternatives and capture the excess return per unit of risk assumed. In our opinion, submit a return of 50% + in one year "right", it could have been 30% if the "not-have-right" would be out of the management parameters "lose small and win enough" . In our approach does not try to "hit" and maximize a good year. We seek to minimize losses in the event of mistakes and capture the positive returns of long-term assets. And we encapsulate this philosophy in its own methodology, we define Adaptive Diversification, with which we are managing the fund in an extremely complex environment. Let's see how things are.
October started with a last quarter where we could see its third recession in six years in the euro area. And we start a quarter where the Federal Reserve will stop buying assets (end of Quantitative Easing). Result: bad news for equities, for the dollar and good for regular bonds. Against this backdrop, the nervousness is spreading the market. And it seems that will intensify in the coming sessions. With a recession "around the corner" in the euro area (or at least a serious stagnation) and a program of asset purchases (QE) that ends at the Fed, investors are opting to replicate positions in riskier assets (stock, high yield). A reasonable decision considering the valuations were supporting these assets expected:
Accelerating global cycle and benefits.
An ECB taking over from the Federal Reserve with a program of asset purchases (QE) very similar.
Neither of these two conditions should support (i) PER cycle highs and (ii) IRR of high yield in minimum cycle are being met. The adjustment in prices (downward) could be extended in the coming weeks.
And the negative impact on FI Cycle Management? Limited in this rough start of the month, as advanced in The Monthly Newsletter Quick laNota this week, we started with 40% of the fund in cash. So far in October, the net asset value of the fund has lost 0.88% compared to -6.84% for European equities or + 0.21% of the public debt UME.
In the following table we show the performance of the 30 September to 10 October the various open positions in the background. Remarks:
Equity Crash: falls of around 4% -6% in just seven sessions. Strong tightening of risk premiums, downward revisions in estimates of growth and the consequent adjustment in valuations. The scenario of recession in Q4 UME is not in price. The odds of recession are far less than 100%, but high enough, in our opinion, to keep pressure on stock prices. We continue to expect a break of the August lows.
Peripheral Government Debt (UME), no pollution, and this is good news. Thus, uncertainty about the economic cycle is not being translated into greater profitability requirement in countries with debt sustainability equation "dubious" (Spain, Portugal, Italy, France, etc.). And as long without pollution, cyclical risk will be limited and not turn into a systemic risk. We will monitor the reaction curves debt countries of southern Europe in the event of an acceleration of the market crash.
Acceptable Emerging RF response after one month of September poor. It is still one of the main stabilizers of the portfolio in recent sessions. The combination of growth (though slowing) margin in economic policy and flow direction (UME fleeing stagnation dynamism EM will they look?) Make us look with cautious optimism this alternative. However, we note that, as more volatility in currency markets and in the curves of funding (USD, mostly), you're likely to see periods of over-reaction in emerging markets (closing positions carry- trade), both fixed income and equities.
Equity Crash: falls of around 4% -6% in just seven sessions. Strong tightening of risk premiums, downward revisions in estimates of growth and the consequent adjustment in valuations. The scenario of recession in Q4 UME is not in price. The odds of recession are far less than 100%, but high enough, in our opinion, to keep pressure on stock prices. We continue to expect a break of the August lows.
Peripheral Government Debt (UME), no pollution, and this is good news. Thus, uncertainty about the economic cycle is not being translated into greater profitability requirement in countries with debt sustainability equation "dubious" (Spain, Portugal, Italy, France, etc.). And as long without pollution, cyclical risk will be limited and not turn into a systemic risk. We will monitor the reaction curves debt countries of southern Europe in the event of an acceleration of the market crash.
Acceptable Emerging RF response after one month of September poor. It is still one of the main stabilizers of the portfolio in recent sessions. The combination of growth (though slowing) margin in economic policy and flow direction (UME fleeing stagnation dynamism EM will they look?) Make us look with cautious optimism this alternative. However, we note that, as more volatility in currency markets and in the curves of funding (USD, mostly), you're likely to see periods of over-reaction in emerging markets (closing positions carry- trade), both fixed income and equities.
Finally see what you are doing volatility. Come up. Normal in episodes of stress, doubt and very tight cycle assessments (excessive, I would say, in the absence of economic growth and benefits). And up in those segments more sensitive to the economic cycle (raw materials, stock exchange) market. We emphasize the decline in volatility in government bond markets and, above all, the collapse correlated Bag / Bonds. Faced with a 55% + average correlation in the first half of September, the correlation currently stands at 7%. That is, the prices of the stock and bonds now move in the opposite direction: the stock falls and bond prices rising (falling interest rates). This reflects a market bottom is starting to value deflation and non-growth as a likely short and medium-term scenario.
In recent weeks we value the opportunity to use part of the liquidity (40%) to positions in government bonds. The rule that we did not consider this "shelter" a very safe place, no default risk, but risk of rising interest rates (falling prices). And what we look for in a shelter is minimal risk of loss of value. Maybe if we shifted some of that cash to public debt instead of -0.88% background accumulate a return of +0.1%. Surely. But our goal is not it right, is to manage scenarios, probabilities, risks. Losses are recoverable if we're wrong. And in this line, it makes more sense to keep 40% in cash and 10% in public debt by 10% in cash and 40% in government bonds.
Next week, depending on market movements, we shift some of that liquidity: Covered Bond, Emerging RF and Real Estate. Without running. With patience. Liquidity is a treasure in periods of instability.
In recent weeks we value the opportunity to use part of the liquidity (40%) to positions in government bonds. The rule that we did not consider this "shelter" a very safe place, no default risk, but risk of rising interest rates (falling prices). And what we look for in a shelter is minimal risk of loss of value. Maybe if we shifted some of that cash to public debt instead of -0.88% background accumulate a return of +0.1%. Surely. But our goal is not it right, is to manage scenarios, probabilities, risks. Losses are recoverable if we're wrong. And in this line, it makes more sense to keep 40% in cash and 10% in public debt by 10% in cash and 40% in government bonds.
Next week, depending on market movements, we shift some of that liquidity: Covered Bond, Emerging RF and Real Estate. Without running. With patience. Liquidity is a treasure in periods of instability.
