WSP Model Portfolios are built from our universe of selected active Ucits funds. We manage actively the allocation according to current and expected market conditions and taking into consideration the fund managers’ exposure.

The aim is to demonstrate that an optimal combination of strategies, coupled with a careful selection of active fund managers, have the ability to deliver added-value to investors over the long run, while keeping a full exposure and constant asset allocation within the given investment profiles.

More detailed reporting including portfolio quantitative and qualitative data are available to customers having subscribed to the WS Partners Model Portfolio Services. Would you request more information on this service, please contact us.

Portfolios Structure

• Portfolios are made of 14 to 17  Ucits or Alternative Ucits funds (according to profile).

• Two currency based portfolios ; in US dollar or in Euro.

• Apart one fund with a bi-monthly liquidity, all funds have a daily liquidity.

• Usually we select identical funds either for US dollar or Euro based portfolios, but keeping currency exposure hedge for fixed income funds.

• The performances are shown net of fees, calculated from the cheapest share classes, hence making our Model Portfolios fully replicable.

Strategic Allocations

We keep a constant balance between equity and fixed income strategies according to Model Portfolio profiles and guidelines. We also maintain a neutral currency and regional allocation compare to benchmarks.

The portfolio outperformance should mainly arise from the alpha generated by active management, and to a certain extent to a diversification optimisation. Tactical bets such as investment style (value, growth defensive), sector allocation (e.g., commodities, real estate), interest rate or spread duration may also contribute, time to time, to the value added generation.

Yield & Income Portfolio

A conservative portfolio with a 1/3 equity and 2/3 fixed income allocation.

Within the equity universe we tend to favour yielding strategies rather than pure price appreciation funds.

The objective is to outperform over time a benchmark composed by 1/3 of the MSCI All Country World Index, and by 2/3 of the Barclays Global Aggregate Bond Index.

Growth Portfolio

The most equity oriented portfolio with the aim to beat a benchmark composed by 2/3 of the MSCI All Country World Index and 1/3 of the Barclays Global Aggregate Bond Index. Growth of capital through capital appreciation is the main long term portfolio objective.

Market Review – April 2020

After the severe shock in March, markets rebounded strongly in April. COVID-19 continued to spread around the world, but some countries have seen daily rates of new infection start to fall and now plan to gradually reopen their economies. Governments and central banks introduced massive stimulus measures to reduce the damage caused by the economic shutdown, restoring some positive sentiment in the markets.

Volatility decreased from extreme levels. Developed equity markets outperformed emerging markets, and growth stocks outperformed value stocks. The S&P 500 index returned 12.8% and recovered nearly 60% of its prior decline. Fixed Income markets rallied as central banks committed to purchase more government and corporate bonds.

In Europe, the ECB continued its quantitative easing programme, applying some flexibility by putting more emphasis on the purchase of government bonds from those countries most in need as a result of the virus, notably Italy and Spain. The ECB also eased collateral requirements to include high yield securities in order to support lending to small and medium-sized enterprises.

The Fed’s response has been spectacular, both in its breadth and speed. The U.S. central bank committed to buying an unlimited number of government bonds. It will also now buy investment grade corporate bonds and high yield bonds (provided that the issuer had an investment grade rating prior to 22 March). In addition, the Fed will purchase corporate bond exchange-traded funds (ETFs), including some high yield ETFs. The action of the central bank contributed to a sharp decline in investment grade and high yield spreads, while keeping Treasury yields low despite the massive fiscal stimulus being provided

Outlook

As mentioned in the previous newsletter, we took advantage of the market dislocation in March to add some credit exposure while reducing our 30-year Treasury allocation which was used as an hedge.

IG credit was the right place to be in April, the asset class was strongly supported by the central banks as most of the bonds have become eligible for the purchase program.

We also added on riskier assets such as loans and subordinated financials. We remain however cautious as long as we will not have a clearer view of the defaults and recovery rates we can expect for corporate credit.

In regard to equity markets, we are sticking with fund managers who have successfully navigated through this extraordinary period, reducing losses and reallocating their portfolio to stocks of companies that can provide the best protection during a recession, the most likely scenario.

At this stage, and as long as central banks are flooding the markets with liquidity, we continue to favour fund managers with a growth bias. However, we remain mindful that a persistent deterioration in corporate earnings could cause markets to revisit their valuation of paid multiples. In this case, a rotation towards value securities would not be excluded.

The MSCI ACWI (USD) gained +11.0% during the month while the Barclays Global Aggregate Index (USD hedged) was up +1.6%.

Active management had a positive contribution in March both in equities and fixed income.

Our quality growth tilt helped and most FI managers were able to recover part of the relative value they lost in March.

Over the 25 funds we have in the portfolios, 20 were outperforming their respective benchmark.

FI strategies rebounded sharply in April, although there is still a long way to fully recover the February/March downturn. While equities recovered 41% of the drawdown, IG credit recovered 46%, Subordinated Financials 37%, MBS 25%, HY Credit 24% and EM debt only 11%.

Same as in 2009, the speed of recovery is directly correlated to the purchase program of the Central Banks.

In absolute terms, the Growth portfolio (+8.0%) outperformed the Yield & Income portfolio (+6.5%) and the Balanced portfolio (+5.9%).

Yield & Income Portfolio (USD)

The portfolio outperformed its benchmark by +184 bps in April.

Following the announcement of the Central Banks we added in Subordinated Financials and IG credit, which was helpful.

EM debt (+3.9%) overweight was also a positive contributor as well as the MBS strategy (+4.2%).

On the equity side, positive contribution came from our selection of quality growth managers, and the healthcare fund (+13.4%).

Active management was a positive contributor (+136bps).

Balanced Portfolio (USD)

The portfolio was slightly behind its benchmark in April (+5.90% vs +6.15%).

The absolute return pocket of the portfolio (1/3) tends to be lagging when both, equities and FI are positively oriented.  This was the case in April.

Among the absolute return funds, the merger arbitrage did well in April (+6.0%), fully offsetting the drawdown of March but the FI absolute return strategy was disappointing (+0.9%).

On the equity and FI pockets, active management contributed positively by 126bps.

Growth Portfolio (USD)

The Growth portfolio was outperforming its benchmark (bps+33bps) in April.

The main contribution was the value added by active managers (+45bps), as well as the allocation in the healthcare sector.

We implemented the same FI strategies as in the Yield & Income and Balanced portfolios in April.