May saw an interesting clash of information, with the global economic impact of COVID-19 starting to show the long-term reality for the world and yet, the index’s rallying. Like John Milton-Keynes said, the market can remain irrational longer than you can remain solvent. This goes to show that prediction based on fundamentals alone gets us nowhere in the long-term, and even though there is a strong case to be made for shorting the markets right now, the question of ‘when’ remains an issue which can cost more money than you have.
Looking more at Ubique, we saw a semi-predictable rise in the Golden Ratio strategy of over 4%, as investors continue to move towards gold during these uncertain times. This retreat to gold also had a knock on effect on the rest of the metal market, with Platinum surging north as well. Our Seasonal Sector Rotation had us short Platinum for May, which resulted in a loss of 9.04%. The Sell In May strategy ended with a mix bag of results, with the shorter term bonds showing a gain, but the 20yr+ bonds showing a loss, netting a total of -1.92%. This gave the portfolio as a whole a loss for May of -2.20%.
To align this month’s performance along with the last couple of months against historical data, it shows a similar picture; that of inconsistent results during the transition of a bull to bear market and vica versa. During times like this, its mainly a game of defence as opposed to offence, and when a clear market trend has been established once again, that’s when this strategy over delivers, like last year (64.76%). Our YtD shows the portfolio down -6.65% in total, against the S&P500 of -2.68%, but the portfolio’s drawdown is much more reasonable during this time than the benchmark. During the coming months of turmoil, if we can track the S&P500 to within a few percent, with a lower drawdown then I would consider that a success, and when we enter the next trending cycle, we will be able to hopefully make up that ground once again, and revert closer to the mean of our compounded annual growth rate (c.28% pa).
For more in depth analysis, everything is on the website for inspection (www.willowoakadvisory.com/ubique).
In other news, we have now completed our first full month of testing on the Spread Betting account, and the results were very similar showing a total loss for the month of 2.83%. This 0.63% differential comes from a couple of places. Firstly, the original testing is based upon an entry of the open price on the first trading day of the month, and an exit price of the closing price. Naturally, this isn’t reality. Sometimes you will buy lower and sometimes higher, as the volatility on the opening 15 minutes of any trading day, let along the first trading day of a new month is almost guaranteed to make sure you wont be able to buy the opening price. However, as you will win some and lose some, in terms of buying cheaper or more expensive, I believe that the opening price is a fair number to use; especially as we are holding for 30 days upwards at a time, rather than for a few hours, or days. The other factor is the holding fee’s one has to pay in Spread Betting, which is based upon the LIBOR plus an added rate for the broker. Based on an account of £100,000.00GBP, this fee equated for about £400 over the month, or 0.4%. Extrapolate that out for the year, and Spread Betting eats about 5% of our alpha. Considering the current CAGR is around 28%, and that Spread Betting is Tax Free (In the UK) and it gives the portfolio a viable executable product, that 5% is simply the cost of doing business, and is reasonable.
For June, we are continuing to hold gold, now our 11th month in a row, shorting Industrials, and long a spread of US bonds. We will continue to mirror this with the spread betting account as well to get more data points to ensure parity before committing to it, and are starting to explore a syndicated/share club model in the first instance to allow investors in.
If you would like to be kept in the loop about this, then drop us an email and we will keep you up to date on these specific developments. We have also been approached by a couple of introduces asking if it would be possible for them to set up a syndicate/share club for their clients, and for us to apply the Ubique strategy to it, and then to share any performance fee’s. This is also doable from what I can see. The specifics needs to be worked out, of course, but in principle, we can’t see anything against it. Again, if this is of interest to you, get in touch and we can discuss it.
Until next time, stay safe and swing easy.