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 – May 2020

The rebound in equity markets extended into May. The impact of the COVID-19 pandemic continued to dominate markets, with an increasing focus on how countries would begin to relax their lockdown measures and how this would affect the economy. Volatility declined and the more moderate markets move compared to April suggest that investors are being watchful of how the situation develops. The S&P 500 climbed to end the month 4.8% higher, and just 10% below the February peak. Growth stocks outperformed value stocks while global government bond markets were broadly flat. European and Japanese stock markets, typically cyclical markets, also ended the month higher.

In the US, corporate earnings reports for the first quarter of 2020 drew to a close in May and confirmed that earnings contracted by around 14% compared to the first quarter of 2019. Defensive sectors such as consumer staples, utilities and health care were more resilient and had positive earnings growth. High demand for technology driven by increased remote interactions helped to keep earnings in the IT sector robust. Financials, energy and consumer discretionary were the worst hit sectors. Earnings for the second quarter are expected to fall in excess of 40% year on year. After the Fed reacted quickly last month by increasing its balance sheet purchases, it made no meaningful adjustments to policy at its May meeting. The Fed Chairman signaled a reluctance to use negative rates, particularly given some of the downside effects on the banking sector.

In Europe, much of the attention has been over a EU wide recovery plan. It would allow the European Commission to borrow EUR 750 billion in financial markets – equivalent to around 5.4% of EU GDP – to be funded by EU budgetary resources. The proposal is for EUR 500 billion of spending to be made available, mostly as grants, and to make EUR 250 billion of loans available to any EU country but focused on those most in need. This should help countries with already high debt levels, such as Italy, to access funding without having to issue more of their own debt. The spread of the 10-year Italian government bond yield over Germany fell by 43 basis points in May and so Italian government bonds returned 1.7%.

Outlook

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

In May we removed all our US Treasury 30-years and allocated in the most hurt fixed income asset class such as the subordinated financials and CLOs (Investment Grade). 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.

On the equity side we keep our growth quality bias unchanged. We replaced two disappointing strategies (Global and Asia) by two funds with the same regional exposure. We favour fund managers who have successfully navigated through this period and who have reallocated their portfolios to companies that offer 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 look after 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) was up +4.6% during the month while the Barclays Global Aggregate index (USD hedged) was up +0.2%.

Active management had a positive contribution in May both in equities and fixed income (FI) portfolios.

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

Over the 25 funds we have in the portfolios, 16 were outperforming their respective benchmark.

FI strategies rebounded sharply in May, particularly those which were still meaningfully lagging such as Emerging Markets Debt and Asset Backed Securities.

In absolute performance, the Yield & Income portfolio (+4.7%) outperformed the Growth portfolio (+3.4%) and the Balanced portfolio (+3.3%).

Yield & Income Portfolio (USD)

The portfolio outperformed its benchmark by +309 bps in May.

The overweight in spread duration was the main contributor in corporate high yield (+6.0%) and in EM debt (+7.9% in Sovereign Hard Currency and 8.1% in EM Corporate).

The CLOs Investment Grade strategy was also a strong performer (+16.1%), by recovering in April and May 90% of its March drawdown.

Active management was a positive contributor (+152bps).

Balanced Portfolio (USD)

The portfolio outperformed its benchmark in May by +100bps (+3.3% vs +2.3%).

The absolute return pocket was marginally detractor of the performance, which was largely compensated by the positive contribution of fixed income strategies.

On the equity and FI pockets, active management contributed positively by +78bps

Growth Portfolio (USD)

The Growth portfolio outperformed its benchmark in May by +46bps.

As for the other profiles, Fixed Income funds were the main drivers of performance, while  active management contributed positively by +32bps.