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 do not hesitate to contact us.

Portfolios Structure

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

• We have started two currency based family of portfolios ; in US dollar and in Euro.

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

• Usually we select the same funds for the USD or the EUR based portfolios, with hedged currency exposure for fixed income funds.

• The performances are shown net of fees, calculated on the cheapest share classes, and 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. Tactical bets such as investment style (value, growth defensive), sector allocation (e.g., commodities, real estate), interest rate or spread duration might also contribute, time to time, to the value added generation.

In the US, after reaching a high on January 26, the S&P 500 dropped by 10.2% in just two weeks on the fear of inflation and surprisingly strong wages growth. The index recovered almost 2/3 of its decline but sold off again to finish the month down 3.7%. In February the realized daily volatility of S&P returns has been one of the highest since the global financial crisis.

The broader global equity market reacted in line with the US equity market. The MSCI All-Country World Index (ACWI) declined 4.2% over the month, the weakest month since January 2016. Monthly returns for the Eurostoxx 50, Japan’s Topix, the UK’s FTSE and the MSCI emerging market index were all down by between 3.4% and 4.6%. Global earnings estimate for 2018 have slowdown. The U.S. is the only major market where analysts continue revising their 2018 earnings estimates upward, driven by rising sales growth estimates, rather than by the effect of the recent tax cut.

U.S. Treasuries sold off amid inflation concerns, the introduction of further fiscal stimulus, and speculation that the Fed could turn hawkish. Ten-year yields rose 16bps to 2.86%. That led to speculation the Fed’s forecasts for growth and rates targets could be revised upwards at its March meeting.

Major yields outside of the U.S., were relatively stable. Gilt finished the month essentially unchanged with some pressure from a hawkish Bank of England upgrading its near-term growth and inflation forecasts and leaning toward further monetary tightening. Japanese yields dropped marginally, falling 3bps. Expectations of the Bank of Japan’s adjustment were pushed back. Although inflation continued to normalize, the pace remained very gradual, and a further appreciation of yen during February (+ 2.3% vs. the U.S. dollar) creates a headwind to this improvement. German Bund yields also finished essentially where they started, down 4bps, as inflation remained stable, carrying on its sluggish pace. Expectations of the European Central Bank ending quantitative easing remained unchanged since it had been pushed forward in January.

Outlook

The expected resurgence of volatility, which started at the end of January to accelerate significantly in February, triggered some changes to the composition of our model portfolios at the end of the month of February with effective date the 1^st of March 2018.

In equities we reduce our exposure to quality-growth funds in favour of lower beta strategies. We will pay specific attention to avoid funds that have drifted to valuations higher than their benchmarks, or peers.

In fixed income we reduce our credit and emerging markets local currencies exposure in favour of low correlated strategies like cat-bonds or mortgage related securities, as well as in emerging markets we added to hard currencies debt.

In alternative strategies, we will expand diversification in our balanced portfolio towards less directional strategies, seeking robust long/short exposure to the equity markets, and looking for risk premia exposures independent from an inflationary led interest rates environment.

• Fund selection decisions: substitution of two funds by two others with same strategies and same objectives, but we believe to have more alpha generation potential.
• US equity vs. European equities for valuation reasons: we reduced the exposure of two pure US equity funds in favour of a small cap European strategy (new exposure) and a large cap European portfolio (increase to existing exposure).
• Fixed Income decorrelated strategies: we decreased the exposure of the portfolios to traditional fixed income drivers such as; rate duration and spread, by introducing two more decorrelated FI strategies; a Catbond and a CLO fund.
• Value style vs. quality-growth style: we reinforce this contrarian bias, which we already have had, more particularly in the Yield & Income portfolio.

The MSCI World Equity index (USD) had a performance of -4.2% during the month while the Barclays Global Aggregate index (USD hedged) returned -0.7%.

In absolute terms, the Growth portfolio recorded the worst performance with -2.9% followed by the Yield & Income portfolio (-1.9%) and the Balanced portfolio (-1.6%)

Overall 18 out of the 25 funds in all the portfolios managed to outperform their respective benchmarks.