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CIO performance review 2018

CIO performance review 2018

Our purpose at MWCM is to empower our clients by enhancing and protecting their savings and wealth. We achieved that goal with flying colors in 2018. Our core seed account (low risk, multi-asset) returned 1% in 2018 (estimated after fees). This compares with the S&P down 4.5%, MSCI World index down 8.7% and balanced funds, such as the Blackrock 60/40 down 5.9%. The average global equity fund was down 12.4%.

This was achieved by taking prudent tactical exposure to uncorrelated assets, particularly Gold and Alternatives. We were Over-weight both asset classes. The account was in-turn Underweight Fixed Income and Equities throughout the year.

We expected both FI and Equities to come under pressure from higher rates and falling liquidity. We were particularly underweight Europe and Emerging Markets. Our expectations played out pretty much as expected, with these asset classes coming under pressure, with EM and Chinese equities underperforming. 

While our exposure to Gold didn’t work for us in the early part of 2018, we maintained our position and increased its weighting in the portfolio towards year end. Gold acted as a good hedge during the turmoil in the last quarter ‘18, rallying 6%, while global equities sank c.14%. We see gold (or silver for that matter) as a critical element to any portfolio going into 2019/20 (see our last Insights which provides our expectations the next few years).

In the case of Alternatives, our dedicated Alternatives strategies account also returned an estimated 1% for the year. The account significantly outperformed its benchmarks, with the HFRI Fund of Fund index and HFRX Global Hedge Fund indices down 3.5% and 6.7% respectively. This data is estimated as some funds have not reported yet.

We favored low beta, uncorrelated strategies, which worked well for clients. A significant effort was made to select strategies and ultimately managers that would not be correlated, either to each other or the underlying asset classes such as fixed income or equities. Manager selection played a key role, as the dispersion of returns was high. 

This strategy paid off for clients as traditional Equity long short and fixed-income managers disappointed generally. A few of our selected managers produced excellent returns, with one ending up over 30% for the year. Several of our managers were up 5%, still a reasonable result. 

While Underweight Equity long/short exposure, however, the small allocation we did have, detracted from our overall results.

We have exposure to a few very high quality managers in the equity space, who have invested successfully over the last fifteen/twenty plus years and have excellent risk return profiles. Even they, though, struggled with the environment in 2018, which gives some indication of how difficult it was to invest in these markets and the level of uncertainty over future earnings, particularly in the health care and energy space in the US. The HFRX Equity Hedge Index was down 6.72% for the year.

The Alternatives strategies account is intended to have low volatility which was achieved in spades, with the account having a volatility of only 2.96% for the year, which is some 20% of the equity markets.

The targeted return of this strategy is around 7%, with a volatility of around 3%.

For clients that want exposure to the account pari passu or our select managers, we can establish a managed account for them and can implement the same or similar strategy based around the client’s risk tolerances. 

Another area where MWCM achieved excellent returns, both absolute and relative, was in Equities. We run an equity focused, long only basket, for clients that can tolerate a little more volatility. On a weighted basis, this basket, as reflected in a representative account, returned 20% for 2018. This was significantly ahead of the indices and most of the equity fund managers we track. The average global equity fund was down over 12% for 2018. Respected long only managers like Orbis were even worse, down 16.9% for the year.

We have a valuation bias, which helped us avoid some of the largest losers in Q4, notably the FAANG stocks.  We allocate to a very limited number of securities that, in our opinion offered excellent valuation metrics. Following the sell-off in the China technology names, we started adding exposure here and have recently also added to US tech exposure. The basket has performed well YTD ’19, up around 8% on a weighted basis.

Again, we can run similar accounts for clients, pari passu or with portfolios being designed around their needs and risk tolerances.  

Our focus and process has worked well for us over last year. Rather than focusing on returns, we focus on managing risk budgets and look to maximize returns within a tightly controlled level of risk. This ensures we take exposure to uncorrelated assets, which helped our clients avoid the downward shock in Q418.

We now have just under two years of solid performance, with client accounts being up both ’17 and ’18. We look forward to an increasingly volatile 2019, an environment which should hopefully test our process and allow us to again demonstrate strong relative and absolute returns.

If you wish to know more about the services we can offer, please don’t hesitate to reach out to myself at [email protected]or give us a call. 

Disclaimer:

This material is mean for accredited clients only. Nothing in this document should be perceived in any way as a recommendation or solicitation to buy or sell any security or fund. The securities and accounts highlighted have been selected to illustrate MW Capital Management Pte Ltd investment approach and are not intended to indicate how any MW Capital Management Pte Ltd fund or account has performed or will perform in the future. The securities and accounts discussed herein in do not represent any entire portfolio or account managed or advised by MW Capital Management Pte Ltd and may not be suitable for all or any readers. Any views, forward looking statements, projections and current investments are based on assumptions and judgements. Because of the significant uncertainty inherent in any assumption and judgements we make, you should place no reliance on such forward-looking statements or views – they may not prove to be accurate and actual results may differ materially. Furthermore, they will change over time and should not be relied on in any way. There is no obligation for MW Capital Management Pte Ltd, and the company expressly disclaims any obligation, to update or alter the statements, predictions or any other information contained herein. This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to adopt any investment strategy. The views expressed may change without notice. Certain economic and market information contained herein has been obtained from published sources prepared by others. MW Capital Management Pte Ltd assumes no responsibility for the accuracy of such information. All investments involve risk, including the potential loss of principal. Performance data is estimated and has not been audited. Funds performance data is usually delayed by a few weeks after month end. It should not be relied on or imply future performance.

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