Ulysses resists the sirens – Oil painting by Herbert James Draper 1909

Trend Concept’s fund managers compare their role to that of Ulysses’ companions: They plug their ears with wax so they can row without being distracted by the siren calls of the markets. Like Ulysses, investors can hear sirens but remain bound to the mast at their own request and thus withstand the temptations of the markets.

INVESTMENT FUNDS

Absolute return funds

Innovative portfolio strategies – Replacing equity exposure

Following the sharp drop in prices on the world’s stock markets in January 2008, it seems worthwhile asking whether this could be the start of a prolonged bear market. Below, TrendConcept outlines some innovative portfolio strategies geared to avoiding losses resulting from falling prices in this scenario, without foregoing the opportunity to benefit from upside potential.

This is achieved by replacing direct equity exposure with an actively managed approach (TrendConcept Automatic Asset Allocator) or using managed futures (TrendConcept Multi Asset Allocator).

A combination of the Automatic Asset Allocator and Multi Asset Allocator funds gives a very stable portfolio with good return expectations. For the period between November 1999 and January 2008 shown in our example, the lowest volatility (6.31%) was achieved with a combination of 80% AAA and 20% MAA. The expected return of 5.59% is very attractive for the period examined. Another convincing feature is the low maximum loss of value of 5.77%.

Analysing the net asset value (NAV) of a fund portfolio comprising 80% AAA and 20% MAA shows good participation in uptrends on the EuroStoxx50 while avoiding pronounced losses.

This strategy can be used to provide an “all-weather” portfolio for risk-sensitive investors, which can master even very difficult market phases with a relatively low risk of loss. At the same time, investors do not have to forego the opportunity to participate in cyclical uptrends on the stock market.