Our investment strategy is composed of different building blocks:
A. Quality value stocks with momentum (50%)
B. Yield stocks (25%)
C. Investment grade bonds (10%)
D. Selection of emerging markets ETFs (15%)
E. Technical overlay with index futures
A. Quality value stocks with momentum (50%)
We designed a stock picking model to identify stocks that offer the best mix in terms of valuation, growth, momentum and risk. We apply this model to the S&P 500 for the US and the Euro Stoxx 600 for Europe. Practically, we have identified 12 criteria (3 for each dimension analyzed) to evaluate stocks in the universe. Each stock is ranked relative to the rest of the universe on each criteria. We then combine ranks on each criteria to give a global score for each stock. At the end of the day, stocks reaching the top 5% of the total ranking are included in the quality portfolio. Each month, the model is computed, a new ranking is published and the portfolio is rebalanced. Those companies that left the selection are sold while new candidates are bought. This rebalancing typically generates a monthly turnover of 50%.
B. Yield stocks (25%)
Beside our dynamic portfolio of equity, we hold a large pocket of value stocks offering high and stable dividend yields. The objective of this building block is to combine capital appreciation with recurring and stable income. A stock selection model is used to identify value dividend yield stocks. The turnover of these positions is much lower with an average holding period of 6 month to 1 year.
C. Investment grade bonds (10%)
To bring more stability and recurring income to the portfolio, we invest in a selection of investment grade bonds, mostly corporate and European. This pocket of assets is very stable are reviewed semi-annually.
D. Selection of emerging markets ETFs (15%)
Stock picking in remote regions of the world is quite complex for a European asset manager in terms of access to information and follow-up. Aware of this limitation, we build our exposure to emerging markets through a range of index-tacking ETFs and add value by adjusting the weight of the different regions to reflect the dynamic we observe around the world.
E. Technical overlay with index futures
Our equity exposure may vary based on our macro views but also based on technical indicators monitoring market trends and reversals. To assess whether to increase or decrease our exposure we use a series of tools such as Fibonacci retracements, moving averages, Bollinger bands, parabolic stop and reverse, relative strength indicators, moving averages convergence divergence and stochastic oscillator.