Model Portfolio Agathos Switzerland
Swiss Absolute Return Portfolio
Definition of Mandate
Permitted shall be investments in Switzerland and in Swiss Francs. Investments may be stocks, cash balance, and/or sovereign bonds. No minimum or maximum exposure weightings apply, except that total exposure must not exceed 100% (gearing prohibited). Derivative instruments are not permitted. The mandate seeks a (positive) return in absolute terms, disregarding the composition of any index. Strategic exposure as well as stock picking are driven entirely by the methodical assessment of investment outlook derived from the application of Agathos Vector Analysis. Investment policy is equal to the investment outlook adapted to the requirements of a specific (here a self-chosen) investment mandate.
Any erosion in value of the total mandate 12 month after inception should not exceed a loss of -5%. Thereafter, this ‘pain threshold’ shall increase at an annualised rate equal to the target return (see “Performance Graph”).
Over the medium term (trailing 36 months), performance shall be 7.5% p.a. or better.
Shown are the portfolio at market value, it’s value adjusted for perceived tactical risk (tactical risk value), the return target (pro rata temporis), and the risk tolerance level (pain threshold). Purely for comparison’s sake, the performance of the Swiss Market Index is also shown.
The first quarter since inception surpassed expectations. This is particularly true in view of the heightened level of unease recognisable in financial markets. The methodical and uncompromising selection executed here in favour of stocks with low overall risk and with low risk probability has been rewarded. In spite of substantial cash reserves, market value of the portfolio increased by 11.4%. Welcome as it may have been, this extraordinarily favourable development must not be extrapolated into the near future. Thanks to the good start, some buffers between mandate parameters and market value have accrued already. This may be valuable during the course of the year. In the 2nd Quarter 2021 markets will continue to be torn back and forth between hopes for growth, and concerns about the return of inflation. In addition to that, fears of a systemic crisis are now tangible once again, if only because of Archego Capital Management, Credit Suisse, and Nomura Securities. Certainly, the challenges to any responsible investor remain very high.
Mandate Compliance Monitor
In the research methodology applied here (Agathos Vector Analysis) as well as in the general philosophy applied within this style of investment management, the ongoing assessment and handling of risk is of paramount importance. In the graph below, the routine monitoring of the portfolios’ status against tangible investment parameters is illustrated. Shown is always the margin between status quo and requirements. For the purpose of depicting risk, risk is deducted from market value. Total risk refers to a scenario where all (estimated) risk materialises simultaneously, without any intervention. Tactical risk is the term used for risk impact having been weighted by perceived probability. The risk-adjusted value of any investments tends to be comparatively stable. What changes more frequently are price and probability. Thus, risk typically rises with rising price but it is usually any change in assigned probability that impacts this calculation the most. This dynamic may trigger transactions in the portfolio, where the overall allocation remains intentionally unchanged, while underneath, stock specific risk is being enhanced. In the graph, positive values correspond to a buffer over and above mandate parameters. To illustrate: At the end of March 2021, market value is more than 15% above risk tolerance (at that point still at 95% of initial value) and almost 10% above return target. If all risk were to manifest overnight, the resulting value of the portfolio would drop 1.8% below the pain threshold (an observation which has led to an adjustment among holdings early in April.) When adjusted for tactical risk, performance is still mildly ahead of the return target.
Strategy & Actual Exposure
Even with the high degree of caution and scepticism towards financial markets and their underlying fragility, it was possible to identify a sufficient number of potential investments with lucrative ratios between risk and reward. After having put ‘a foot firmly in the door’ at launch, subsequent purchases have been subject to specific timing considerations. Only gradually did total exposure rise towards the strategically intended level. While some stocks identified for commitment never offered the hoped for buying opportunity, others that were bought, advanced equally strongly and rapidly. With these price appreciations, perceived risk advanced too and reached levels seen as critical in the context of a risk averse mandate by the end of the quarter.
Unrealised Profit & Loss
The graph illustrating P&L status of holdings shows the sums of unrealised gains, and unrealised losses respectively, each expressed in proportion to total book value (cash excluded). For the vast majority of holdings, market value stands comfortably above book value.
The graph above plots purchases and sales in proportion to market value (previous month). Columns indicate cumulative turnover, ½ the sum of purchases and sales. There were no disposals during the reporting period.
The table below lists concluded transactions, identifying details of the investments and profit or loss thus realised. The yield on transaction shown at the end of the table reflects the capital-weighted average.