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.

Stock prices climbed across regions for the second consecutive month in February. Investor sentiment was buoyed by a combination of constructive US-China trade talks, a considerably more dovish stance from the US Federal Reserve and the implementation of Chinese stimulus measures.

In the US, Economic growth remains on firm footing. The delayed release of fourth quarter GDP showed that growth had moderated from 3.4% quarter on quarter annualised in the third quarter, to a still above-trend 2.6% in the final quarter of 2018. The minutes of the January Federal Open Market Committee meeting confirmed the dovish shift in thinking. This move has helped to push down longer-term bond yields.

In Europe, signs of weakening momentum persisted in Europe. The second estimate of quarterly growth in the fourth quarter remained at 0.2%, but growth in France was better than expected. By contrast, the German economy did not manage to grow at all in the final three months of 2018. The flash eurozone composite PMI improved to 51.4, but the manufacturing index fell below 50, indicating an outright contraction in manufacturing activity.

Challenges for emerging markets persist. Activity is still weak, if not contracting, in many countries according to the composite PMI reports. However, a more dovish Fed and the resulting prospects for a weaker dollar, combined with the Chinese stimulus measures, is increasing investor appetite for the asset class.

At this stage in the cycle, where the macroeconomic data is more mixed and political uncertainties remain, we implemented (effective at the beginning of February) a more defensive stance in the portfolio as discussed in the December newsletter.

Outlook

We have made no change in the portfolios in February, following some reshuffle in January.

As already explained in previous newsletters, we have decided to reduce our overweight exposure in small- and mid-caps equities as well as to reduce our overweight in European equities. Instead of that we reinforced our holding in a Large Cap Global Quality Growth portfolio and we introduced a new holding in a US Large Cap fund. We keep however our EM overweight unchanged.

In the Fixed Income side, while we keep our exposure on Credit (particularly in Subordinated Financials) and on EM debt unchanged, we took some profit in some alternative strategies where we see the risk premium as relatively tight (RMBS non-agency and Cat bonds). As we don’t intend to increase our portfolio’s sensitivity to the duration or to the credit spread, we were happy to introduce a Supply Chain Finance fund which offers at current valuation a relatively interesting yield (6.5% in USD), no interest rate duration and a low volatility profile. Other alternative fixed income strategies could be introduced in the next few weeks.

The MSCI ACWI (USD) was up +2.7% during the month while the Barclays Global Aggregate index (USD hedged) was up 0.1%.

Active management had a strong contribution in February. Most of equity fund managers took profit from the outperformance of small- and mid-cap equities while Fixed Income managers were helped by the spread tightening across all credit asset classes. Over the 25 funds we have in all Model Portfolios, 17 had a positive excess return.

In absolute terms, in markets driven by positive sentiment the Growth portfolio (+2.1%) unsurprisingly outperformed the Yield and Income portfolio (+1.7%) as well as the Balanced portfolio (+1.5%).

Yield & Income Portfolio (USD)

The portfolio outperformed its benchmark by +71bps, bringing the outperformance close to +200bps for year. Overweight in spread duration in addition to the active management contribution (+39bps) were the main factors. The Loan strategy rebounded strongly in February (+1.6%) and the EM Corporates fund (+1.8%) contributed the most.

Balanced Portfolio (USD)

The portfolio outperformed its benchmark by +12bps. The strong positive contribution of active management (+53bps) was partially offset by the defensive stance of the Absolute Return strategies in this growth focus environment.

The total return of the portfolio is at a strong (+5.57%) year to date. While underperforming slightly its benchmark by -37bps, the portfolio has reached that return with a lower volatility, for a Sharpe ratio of 0.84, vs 0.63 for the benchmark.

Growth Portfolio (USD)

The Growth portfolio (+2.06%) outperformed its benchmark by +25bps in February which came almost exclusively from the active management contribution (+33bps).