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CLIP PORTFOLIO APRIL 2018 PORTFOLIO MANAGEMENT TEAM COMMENT: Ever since the announcement of the creation of our portfolio last month, we entered into a stumbling market. Investors were held in a thrall due to the tit-for-tat trade actions between the US and China. Initially, stocks plumped because of China's proposed retaliatory tariffs on US imports. Positive signs from Washington D.C. caused a slight recovery but those were erased right away by the White House after a new consideration of additional tariffs on Chinese goods. In Europe, economic data underwhelmed, indicated by the final March composite PMI (Purchasing Manager Index) hitting its lowest level since early 2017. Asia's markets have been suffering from weak new export orders. COMPANY

Católica-Lisbon Investment Partners

FUND NAME

Católica-Lisbon IP

HEAD OF PORTFOLIO

Felix Cord Lorenzo Candotto, Miguel Ferreira, Filipe Pessoa Jorge

PORTFOLIO TEAM SYMBOL

WFWF01CLIP

DATE CREATED

PORTFOLIO PERFORMANCE ONE MONTH THREE MONTHS

-

ONE YEAR

-

YTD

-

SINCE INCEPTION

27.02.18

CURRENCY

MSCI World Equity

-1,33%

METRICS

EUR

BENCHMARK

-1,26%

ALPHA

-2.85

BETA

STOCKS ETF

EQUITY

ISIN

LAST WEIGHT PRICE

NAME

DE0005664809 EVOTEC OAI AG

14 800 €

0.9%

DE000SHL1006 SIEMENS HEALTH.AG

32 456 €

1.0%

ES0148396007 INDITEX

25 158 €

1.9%

IT0003132476

15 243 €

1.2%

74 407 €

1.1%

US01609W1027 ALIBABA

142 107 €

3.6%

US0231351067 AMAZON.COM INC.

1,171.59 €

1.2%

US29089Q1058 EMERGENT BIOSOLUTIONS

43 645 €

0.5%

US46625H1005 JP MORGAN CH.

91 828 €

1.4%

US92826C8394 VISA

97 916 €

2.5%

107 430 €

8.3%

21 465 €

7.9%

ENI SPA

US00287Y1091 ABBVIE INC

DE0005933931 DAXEX IE0031442068

ISHARES S&P 500

FIXED INCOME

IE00B4L5YC18 ISHARES MSCI EMERGING MARKETS

5.00%

29 720 €

8.1%

4 077 €

28.2%

IE00B2NPKV68 ISHARES J.P. MORGAN $ EMERGING M

89 116 €

2.1%

IE00BC7GZJ81 SPDR Barlys 1-3 Yr. U.S.Tr.Bd.

39 915 €

6.1%

3 988 €

4.1%

IE00BZ048462

ISHARES USD FLOATING USD DIS

IE00BDQYWQ65 ISHARES $ TIPS 0-5

SHARPE RATIO

0.01

ASSET CLASS ALLOCATION Cash 20%

Equity 36%

Fixed Income 44%

GEOGRAPHIC ALLOCATION Asia 24%

Europe 35%

North America 37%

3.00% 1.00%

-2.32

STANDARD DEVIATION

Emerging 4%

CUMULATIVE RETURN

0.71

INDUSTRY ALLOCATION

-1.00%

Insurance 5%

Retail 11%

-3.00% -5.00%

HealthCare 10%

-7.00%

Tech 36%

Pharma 12% CLIP

MSCI World Equity Index

1

Auto&Parts 4%

Chemicals 4% Financials 12%

Energy 6%


MARKET OVERVIEW 1ST QUARTER

EQUITY MARKET Volatility is back, after a strong year for

of 5.8%. Regarding the Chinese market, the

equity markets during 2017, the majority of

Hang Seng Index also registered a decay of

the markets continued their rise, only to

3%.

stumble before the end of January. There

outperformed the rest, delivering a return of

was a brief recovery in stocks by the end of

1.4% for the first quarter of the year.

At

last,

the

emerging

markets

February, but it was then interrupted again in SEASONAL TRENDS

March, due to escalating concerns over a potential trade war between the US and

Over the long run, stock returns by

China.

month are not as volatile and unpredictable

The first selloff was triggered by fear of increasing

interest

an

Historically, April has been a solid month

unexpected acceleration in wage growth,

for the equity market and is commonly

but this growth was declared as rather

followed by the well-known trading saying,

gradual,

was

“Sell in May and go away�. Suggesting that

unjustified. Simultaneously, US companies

investors should sell in May, in order to

started to report strong earnings, which led

benefit from the gains of March and April

to a period of recovery. However, it did not

and return to the market only in November,

last for long, as the fears and concerns over

thereby avoiding the typically volatile May-

a potential global trade war arose and an

October period.

proving

rates,

that

the

due

to

as one might think.

selloff

increasing inflation guided another bear

Since 1950, the Dow Jones gains, on

market.

average, 1.9% during May, translating into

All these events steered the global

the best month performance of the year. The

markets to negative territories, meaning that

S&P 500 and the Russel 2000 also record

the ACWI Index stood down 1% for the

one of the finest month performances,

quarter. The S&P 500 and the Dow Jones

returning, on average, 1.5% over the month.

Industrial Average were also down 1.2% and

Over the past 10 years, this trend has been

2.5%, respectively. On the other hand, the

particularly

Nasdaq Composite returned 2.3% and the

presenting positive returns 90% of the time,

Russel 2000 dropped only 0.4% over the

gaining an average of 2.2% over the month.

quarter.

pronounced,

with

April

Nevertheless, it might be different this

Eurozone equities had negative returns as

year. It’s important to note that 2018 is a

worries over US rates and trade war affected

midterm election year and, historically, these

the markets, with the STOXX 600 down by

lead to a weak second and third quarter for

4.1%. In the UK, due to the sterling strength,

the equity markets. Additionally, over March,

the FTSE 100 fell by 8.2%.

the Dow Jones, the S&P 500, and the

The

Japanese

market

followed

the

Nasdaq fell by 3.7%, 2.7% and 2.9%,

declining pattern of the rest of the global

respectively, as the trade tensions between

markets and ended the quarter with a drop

US and China remain unresolved. 2


MARKET OVERVIEW 1ST QUARTER

1.7%

S&P 500 returns from 1950-2017

1.1%

0.5%

-0.1%

-0.7% Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

FIXED INCOME In the month of March, yields marched

from 36.3% to 45.5%. The probability of an

lower in all developed countries. On March

increase being between 2.25% and 2.50%

21st Jerome Powell, increased interest rates

increased from 19.2% to 25.2%, while the

by 25 basis points on his first meeting after

probability of being between 1.75% and

becoming the new chair of the FED. US

2.00% decreased from 29.1% to 25.3%.

rates, however, didn’t rally as the increase was

fully

discounted

by

the

This in line with the FED being seen

market.

modestly more hawkish in the last meeting

Moreover, the recent turmoil in tech stocks

with members leaving unchanged their

and the fears of a trade war prompted

forecast of three hikes in 2018 but moved

investors to look for safe havens and the

up the interest expectations for 2019.

US 10-year government bonds turned out

In Germany, yields decreased by 10

to be one of them. Right after the Facebook

basis points, from 0.60% to 0.50% right

scandal and the Tweets by President

after the tech selloff in the US and stayed

Trump against Amazon, yields lost about 20

stable since then. The ECB held a meeting

basis points, from 2.92% to 2.72%, and

on March 14th and, though Euro area

they currently are at 2.80%.

economy lost a bit of momentum in 2018, policymakers expressed confidence that inflation will converge to the target of close but below 2%. In Japan, the fears of a trade war pushed down the 10-year yield that went from 0.05% to the lowest of 0.019% (on March 23rd), and the Yen, which hit the highest point since Trump elections (104.56 toward the USD on March 25th). Conciliatory tones

Regarding the future of monetary policy,

both from Trump and from Xi, however,

we can see how the markets expect

eased the fears of a trade war and since

another two to three hikes in 2018. From

then the 10-year yield moved from 0.019%

the previous month the probability of rates

to 0.03% up to date and the Yen lost

being between 2.00% and 2.25% increased

ground to 107.00. 3


MARKET OVERVIEW 1ST QUARTER

10 Yr Germany

10 Yr US

10 Yr Japan

0.8

0.10

3.2

0.7

0.08

3.0

0.6

0.06

2.8

0.5

0.04

2.6

0.4

0.02

2.4

0.3

0.00

2.2

IN DEPTH TOPIC: ARE US YIELDS REALLY HIGHER? At the moment of writing, the US 10-year

calculation are as follows:

government bond yields 2.80%, the German 10-

Cost of hedging from April 2018 to June 2018:

year yields 0.51% and the Japan 10-year yields

(1.2421-1.2373)/1.2373 = 0.39%

0.03%, the EUR/USD exchange rate is 1.2373.

Cost of hedging from June 2018 to September

Even though yields seem much higher in the US,

2018: (1.2511-1.2421)/1.2421 = 0.72%

for a foreign investor this difference is more or

Cost of hedging from September 2018 to

less cancelled out when currency hedging costs

December 2018: (1.2606-1.2511)/1.2511 =

are taken into account. When foreign investors

0.76%

buy foreign assets they tend to hedge the

Cost of hedging from December 2018 to March

currency exposure in order to have a known

2019: (1.2710-1.2511)/1.2511 = 0.83%

income. Hereunder, we have the prices for

Total cost of hedging: 0.39% + 0.72% + 0.76% +

EUR/USD Futures quoted at CME.

0.83% = 2.70%

We will assume the currency hedging is

Net interest = US 10 year yield – hedging costs =

rolled over every three months as usually the

2.80% - 2.70% = 0.10%

better liquidity is in the three months contract.

(Note that we can sum the hedging costs

Moreover we will use the assumption that the

because the amount to hedge is always the

expected exchange rate at every maturity is the

same. If 100,000 USD are invested, the

future exchange rate.

European investor will have to hedge always

We will show how the interest rate

100,000 at every maturity).

denominated in EUR is much smaller using a

We can then see how, for a European

European investor as an example: We will

investor, it is much better to invest in a German

suppose he or she buys a 10-year government

10 year government bond yielding 0.51% rather

bond at the current exchange rate (1.2373) and

in a US 10 year, which yield a currency hedged

hedge his or her currency position every three

interest of only 0.10%.

months. Month

To

calculate Last

the

hedging

Change

cost

Prior Settle

Open

High

Low

Volume

Jun 2018

1.2432

0.0011

1.2421

1.2414

1.2447

1.2412

48,516.00

Sep 2018

1.2516

0.0005

1.2511

1.2510

1.2534

1.2510

17.00

Dec 2018

1.2612

0.006

1.2606

1.2621

1.2622

1.2609

6.00

-

1.2710

Mar 2018

4

-


MARKET OVERVIEW 1ST QUARTER

CURRENCIES The Euro remained fairly unchanged for

by the less hawkish than expected Federal

the last month and a half, as the ECB is

Reserve meeting.

maintaining its asset purchase program

The US dollar index remained consistent

(APP) unchanged and sticking to the core

for the last month and is now characterized

inflation projections. The main reason for

by the political uncertainty regarding trade

this is the subdued inflation preventing an

tariffs.

exit from QE, although the central bank

Although

the

US

currency

basket

pledged to raise or extend the APP if

declined by 0.6%, the dollar versus yen

needed.

increased by 0.53 % with Bank of Japan

The euro against the Canadian dollar

remaining a dovish policy stance, saying

(EUR/CAD) has been decreasing since mid-

there would be no plan to change monetary

March after Canada’s Finance Minister said

policy until inflation reaches the two percent

he wants to focus on policies to improve

target.

competitiveness to fight the continuous

Currencies

trade deficit. 3%

The value of euro increased against the

2% Cumulative Return

US dollar and the Japanese Yen around 1%. The

pound

sterling

responded

accordingly to a higher demand for the currency after the Bank of England left

1% 0% -1% -2%

interest rates untouched but hinted that

-3% Mar

they might be heightened in May supported

EUR/USD

by UK wage growth and a steady inflation. EUR/GBP

has

been

declining

and

EUR/GBP

4%

Australia

Cumulative Return

in

EUR/CAD

5%

breaking a support level of 0.87. unemployment

EUR/JPY

Currencies

transacted at lows of June 2017 after The

Apr

developed from 5.5% to 5.6% in February fueling the appreciation of the pound to Australian dollar, which rose by 3%.

3% 2% 1% 0% -1%

The sterling pops higher than the US

-2%

dollar gaining 2.9%, trading now above

Mar

1.42. This increase has been strengthened

GBP/USD

5

Apr USD/JPY

USD

GBP/AUD


MARKET OVERVIEW 1ST QUARTER

COMMODITY Overall, markets are suffering from the

uncertainty.

Other

metals,

such

as

escalating tensions in the Middle East

palladium, surged strongly this week, being

sending Brent crude future prices to

up 0.4% at $955.75 on Wednesday 11th

$72.26/bbl, on Friday 13th April. US WTI

April. Palladium, to whose export amount

crude futures were also up at $67.3/bbl,

Russia is accountable to 40%, has bounced

pushed by considerations of the US and its

considerably

allies to attack Syria via air strikes. Even if

sanctions. Even though the export of

Syria is not a significant oil producer itself,

palladium is not directly affected, analysts

the wider Middle East is the world’s most

are generally concerned about a market that

important crude oil exporter and prone to

has been in deficit over a decade.

this

week

due

to

new

regional tensions, which strongly influence

Since the beginning of April, the main

the oil price. Additionally, the US Energy

cryptocurrency bitcoin is trading in the

Information Administration (EIA) announced

range of $6,500 to $7,000 representing a

that

oil

level of stiff resistance after the sharp drop.

production in 2019 to rise. Plus, the agency

However, bitcoin broke free, opening at

forecasts a nearly 14% rise in summer retail

$7,723 on Friday 13th April. On Wednesday

gasoline prices. In fact, it sees the average

this week, Vietnam officials asked police to

retail price of rather $2.74 a gallon for

investigate concerning the country’s largest

summer

cryptocurrency fraud. Furthermore, Vietnam

it

expects

domestic

driving

season,

crude

compared

to

summer 2017 prices of $2.41 a gallon. Crude

only

declaring

East

cryptocurrencies as illegal. On the other

an

hand, renowned investor George Soros

increase in price for the fifth day on Friday

considers investing in bitcoin after helping

13th April to a spot price to $1,340.5 an

to push down the price further calling the

ounce. Gold is often perceived as a safe

cryptocurrency industry a bubble earlier this

haven during times of political and financial

year.

commodity tensions.

oil

has

affected Also,

15% 10% Cumulative Return in %

not

gold

been

by

the

strongly supports its anti-crypto position

Middle

experienced

any

transactions

Commodities

5% 0% -5% -10% -15% -20% -25%

Brent Crude Future

Light Sweet Crude Oil (WTI) Future

BTC/USD Spot Rate

Gold Composite Future

6

Dow Jones Industrial Average Index

in

CLIP Portfolio - April 2018  
CLIP Portfolio - April 2018  
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