Every now and then, something would come along to test the robustness of our investment approach or philosophy.
For 2020, that something turns out to be COVID-19 or the Coronavirus Disease 2019.
It started out fairly benign.
The consensus thinking was that it can be contained within China. However, all hell broke loose in the final 7 days of February when a number of countries confirmed their first cases.
This broke the straw on the camel’s back and global equity markets took a big hit.
If any good came out of this situation, it is that this provides a good test for any investment process. My quantitative investing approach was tested as well. To this end, let’s have a look at how my quantitative multi-strategy portfolio performed during this period. This performance snapshot is pulled using Interactive Brokers’ Portfolio Analyst tool.
The blue line represents my portfolio performance. The green line represents the performance of the MSCI All Country World Index for comparison.
January was positive for the portfolio. However, the portfolio took a hit in February due to long positions in US stocks and REITs.
An allocation to US treasuries helped to buffer the loss. US treasuries performed its traditional role as a safe haven. As a result, the portfolio lost much less than the S&P 500. At the beginning of March, the portfolio took on long positions in a number of country ETFs and crude oil.
A statistical arbitrage model also indicated potential mispricing between country ETFs.
All this worked out well for the portfolio as equity markets rebounded and the mispricing began to normalize. As a result, even though we are still in the first week of March, the portfolio has already made back more than what it lost in February.
So how did my quantitative investing approach pass this current test?
The COVID-19 situation is still very fluid at the moment so I would say that the test is not over yet. But as of now, I would say that it is performing with flying colors.
- Masters of Science in Wealth Management, SMU
- Bachelor of Civil Engineering (2nd Upper Class) from NUS
Patrick is a portfolio manager of a systematic hedge fund. He has extensive experience, having spent more than a decade in the asset management and banking industry working through various roles since 2005. These include managing private client portfolios, covering hedge fund clients for equity derivatives products and strategy, product control on derivative and structured products and fund management.
Prior to all these, he started out his first career in the civil service in 2000. After building up his initial savings, he started investing in stocks. From there, he developed a keen interest in financial markets which led him to make a mid-career switch into the finance industry. Gradually, he moved beyond picking stocks to adopting a global macro mind-set covering multiple asset classes. This helped him navigate the 2008 financial crisis successfully. Eventually, he settled on the systematic data driven approach towards investing.