Article / 01 May 2014 at 10:33 GMT

Global Beta: New high marks first anniversary

Head of Equity Strategy / Saxo Bank

•  Global Beta up 0.9 percent in April
•  Fixed income delivers positive figures
•  Prospect of good risk-adjusted return

By Peter Garnry

The Global Beta's launch a year ago came just as the strategy entered what would become its second largest drawdown in the period since 1998, covering both backtesting and live trading. After one year of drawdown and setbacks due to rising interest rates, flat commodities, falling gold prices and turmoil in emerging markets, Global Beta has finally recovered and made new highs in April.

Asset classes up across the board

Global Beta was up 0.9 percent in April on the backdrop of surging assets around the world. Every asset class that the strategy invests in was up with two biggest contributions coming from US TIPS and 7-10 year government bonds. Fixed income delivered positive returns in April as investors responded to the mixed economic data by bidding up bond prices.

Asset class attribution

Source: Bloomberg, Saxo Bank

Normalisation but at lower levels

With last month's performance Global Beta is now at new highs and up six percent since the bottom in June 2013. The strategy is up 3.3 percent year-to-date. Global Beta is still trailing the 60/40 portfolio as equities have been the best performing asset class over the past year. However, with normalised valuations, this vast outperformance is coming to an end. As such, we do not expect the 60/40 portfolio to outrun the Global Beta over the next 12 months.

Global Beta performance since inception

Source: Bloomberg, Saxo Bank

The Global Beta delivered 9 percent annualised in the backtesting period 1998-2013 (see chart below). While the strategy is up 6 percent since the bottom in June 2013, which translates into 7.2 percent annualised, we believe it is unlikely that the strategy will go back to the 9 percent annualised levels over the next decade.

The backtesting performance was favoured by declining interest rates, which made the strategy's exposure to fixed income a good bet since 1998. With the cycle changing continually, falling interest rates have ended and as such, a strategy like Global Beta should experience somewhat lower returns. Annualised returns around the 7 percent level is a likely yardstick for the strategy and is based on the current data and outlook for asset classes. Global Beta will still, despite lower expected returns compared to history, deliver a much better risk-adjusted return than investors can get from any one single asset class.

Global Beta performance since inception including backtesting

Source: Bloomberg, Saxo Bank


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