Tag Archives: Capital preservation

The results of the T-Advisor model portfolios in 2016

T-Advisor, as wealth management solution for individuals and professionals, has not only tools for own investments, but also proposals to follow or even copy. That’s why our system has its own model portfolios. They are nine: five related to risk profile (from aggressive to very conservative) and five related to countries (Germany, UK, Spain in Europe and Mexico and Nasdaq 100 in the Americas).

How do they work? We select between four and six ETFs for the risk-profiled portfolios and up to ten stocks for the country portfolios. The main point for us is capital preservation. That’s why our results, when they are negative, are better than the markets. To obtain those results, we rebalance the portfolios every two months. These rebalances let us improve the results, as we exclude the positions more affected by market negative waves and substitute them for better stocks or ETFs. Diversification is also part of the strategy. We select the securities with the best score and relevant figures to obtain the best results.

These are the results for 2016 for our risk-profiled model portfolios:

1-Y-return 2016 1-Y-return 2015 Volatility Sharpe ratio
Aggressive

5.85%

-2.53%

12.51%

1.51

Dynamic

5.29%

1.47%

11.14%

1.52

Balanced

1.79%

3.53%

6.18%

1.42

Conservative

2.68%

1.52%

2.82%

1.35

Very conservative

0.90%

0.80%

2.07%

0.55

The figures were collected on January, 2nd, and we compare the results of 2015 and 2016. There is a general improvement (except the balanced strategy, although it is positive anyway). We have to remember that the year was quite unstable in the markets, as there have been several surprises that affected negatively. Despite this instability, none of our strategies closed with negative returns.

And now the results of our country portfolios:

1-Y-return 2016 1-Y-return 2015 Volatility Sharpe ratio Index
Germany

41.37%

44.70%

14.01%

6.98

6.87% (DAX)

Spain

1.31%

5.74%

16.17%

2.13

-2.01% (Ibex)

México

14.58%

23.96%

13.98%

5.61

+6.20% (IPC)

Nasdaq 100

24.68%

2.97%

9.58%

4.71

+7.50% (Nasdaq)

UK

9.03%

18.32%

15.99%

4.69

+14.43% (FTSE)

Except the UK portfolio, our strategies outperformed their benchmarks, but even the British one obtained a quite good return. The best performer was the German strategy again and the worst was the Spanish, but in this last case, the benchmark Ibex finished with a negative result.

Learn more about our portfolios and the assets included in our platform. Aren’t you tempted to clone them? We have a tool to let our users do it. Let’s try it and compare the results with your investments!

Capital preservation: more than a strategy

People out from investments usually think that this business is easy and high returns are the common rule. If you say: “I invest”, then they look at you as a rich person, when you probably try to avoid a lost of purchasing power caused by inflation. That is usually the most conservative strategy, but the idea behind that behaviour is capital preservation.

Capital preservation is defined as a conservative strategy that tries to avoid the loss of value of your investments. Some investors are just quiet if their money does not decrease, but this little ambition has an enemy: inflation. If the financial goal reduces only to that narrow meaning of capital preservation, they will surely lose purchasing power in the long term. That’s why this strategy is recommended for safe short-term investments, as bonds or certificates.

However, capital preservation means something else, because it is behind every investment strategy. Whether it is more aggressive or more conservative, it does not mean that the goal behind the scene will not be the same: to keep at least the same as we invest and keeping the same purchasing power. Possibly, someone argues that the more aggressive portfolios are designed to obtain the highest return accepting volatility, but no investor is so fool to accept losing their money without a B-plan.

This B-plan to preserve the capital is rebalancing. When an investor receives alerts from their system, he has to decide when to change his strategy. Regular investors are not traders, but they prefer to invest in the long-term. That’s why these investors have to avoid panic in certain periods when markets are bearish or react negatively due to any external reason (e.g. Brexit or similar). Investors have to look at the long term and analyse with their tools the real effect over their strategy and if they have to rebalance their portfolios. What for? First of all, to preserve their capital; secondly, to serve their strategy (more conservative or more aggressive).

In other words, as the main goal for companies is surviving in the markets, the main goal for an investor is preserving his capital. Returns will come, higher or lower, but these will be the second step. Alerts, optimising modules and bootstrapping systems (as T-Advisor has) are the tools to be successful for it.

Is my portfolio working or not?

Portfolio main screen in T-Advisor

Investors organise efficiently their investments in portfolios. That’s the rule, but the question is: how to follow up my portfolio? Can I preview somehow troubles in my investments? Which ratios should I take into account to set and allocate my assets?

There are some indicators that give us some clues whether we are right or wrong and the changes we have to decide:

  • Returns: of course, this is the first one. As investor, you do not have to be anxious about the short term, because volatility is our current rule. You should use a tool that provides you different terms in order to compare the evolution. However, you have to think about changes if the returns are negative in the middle term.
  • Comparison with other references: it is a good idea to compare the evolution of your portfolio with the benchmarks (an index or a smart benchmark). This comparison will help you evaluate a proportion of the profits or losses that you get and diminish or underline the importance of the result. For instance, if your portfolio losses 3% and your benchmark losses 5%, it is not so bad. You are better than the index, although you should consider change your strategy, it the negative trend intensifies.
  • Diversification: get charts about the proportion of the assets in your portfolio related to regions, currencies and asset category. A diversified allocation will help you avoid several risks.
  • Risk: this is actually the second most important indicator after returns. Analyse the volatility, the value at risk (VaR) and the risk contribution of your positions. A segmented analysis will focus better your next decisions. Should I keep, sell or buy? Another quite important figure is the Sharpe ratio to understand how interesting is assuming risks in order to obtain certain returns.
  • Trend: you should as investor use tools to get the portfolio trend, if bullish or bearish.
  • Portfolio and investor profile consistency: is your portfolio consistent with your investment profile, your risk tolerance and your expected returns? That is another question that you have to ask yourself.

You need tools to make a full analysis and obtain a whole view over your portfolio and take the best decisions to improve your results. It is important that you get unbiased indicators, watch risk and returns, understand everything and take rational decisions, never guided by a short term situation. At the end, it is not only about profits, but above all capital preservation. The T-Advisor platform offers these figures so that everyone can set and allocate assets their own portfolios in the most efficient way.

Model portfolios, the fashion product in investments

Model portfolios in T-Advisor

Model portfolio is one of the main fashion concepts in investments. They are mentioned everywhere and the roboadvisor trend has underlined them as a standard solution to offer easy and cheaper investment products with interesting returns.

In T-Advisor, model portfolios are far from being something new. We saw it clear since the beginning three years ago. One of our modules is specific to provide two different kind of them: ETF portfolios divided in different risk profiles and share portfolios divided in different markets.

Our modeling strategy is based on quantitative calculations. These are complex mathematical models that help detect investment opportunities mixing several indicators, as historical returns, volatility, trend, alpha, VaR, correlations… the data cocktail depends on the developer and the strategist, who work together to find the appropriate composition of this data mix in order to obtain the most interesting assets and the best performance.

In our case, our model portfolios play with two criteria: best performance and capital preservation. We look for good returns to overperform the market, but we also reduce losses compared with the reference indexes in bearish periods. To keep these goals, we review every second month the model portfolios to rebalance the assets that are not working as we wish.

Model portfolios are easy for customers: the structure is clear, they are based on a disciplined strategy and changes are seldom, in order to make adjustments in certain periods. However, they are not easy products for the companies that offer them, because they need strong calculation systems, as we have developed in T-Advisor. In addition, we cannot say that the machine work alone, but wealth managers monitor also the process, creating the strategy and analyzing possible changes. Although model portfolios are linked to roboadvisor, they are not totally robotic and they are used by traditional investment houses.

Model portfolios are flexible, because the wealth manager can design them taking into account different diversification, risk, assets, currencies or geographical areas. They are also easy to explain to investors, because they look like bespoke boxes.

Take a look at one example in T-Advisor: our Mexico portfolio, composed by 10 local shares. The 1-year performance was 22.69%.

Mexico model portfolio in T-Advisor

The Mexican IPC index had a 1-year performance of… 0,46%.

Mexican IPC index performance

This is a clear example of how a model portfolio works. Individual investors choose them because they are easy to understand and wealth managers, because they are easy to explain. Communication plays a very important role in finance and easy products provide more trustworthiness.

My goal in bearish markets: capital preservation

Markets are currently very volatile. We have lived a strong bearish period, but it is not sure that the bulls are coming, as the trend is not clear yet. In this case, panic is the worst adviser. On the contrary, investors have to analyse properly their portfolios to take right decisions. If you are not a trader, if you are a long-term investor, then you have to assume that it is difficult to avoid losses in some periods, moreover when all markets are dropping. So, your goal has to be another: capital preservation.

What does capital preservation mean? Your goal as investor must be to keep your assets with the less possible losses or, of course, to obtain benefits. As there are many changes in the long term, then you have to concentrate your worries in the bearish times: how much are you losing? The success is not to lose or lose less than the reference markets, but how can you get that information? The answer is smart benchmark.

Smart benchmark chart in T-Advisor

The picture above is very clear: my portfolio is losing, because I have invested in a market that is going hard into negative, but I only lose -2.4%, while the reference market (the smart benchmark) loses -14%. Not bad, huh?

As we regularly say, it is important to have available the right tools to analyse your investments and take decisions. Capital preservation has to be your first goal. Don’t lose money or lose the least. Then it the bullish times, your goal has to be to outperform the reference market.

The following chart is even clearer:

Portfolio risk figures

My Germany portfolio is much better than the benchmark: quite less losses in a bear period, less volatility and better Sharpe ratio.

What other tools do I have to consider risks in order to preserve my capital?

  • Analyse how your positions contribute to risk your portfolio. In this case, you can find out if you have an uncomfortable asset to be substituted.

Risk contribution chart in T-Advisor

Risk profile comment with portfolio risk in T-Advisor

  • Consider the diversification. In bearish periods, diversification is a great help to avoid hard losses. You can analyse it with the diversification benefit, that compares how much you win if your portfolio has different assets:

Diversification benefit in T-Advisor

  • Look at the Value at Risk, which measures the probability of having a certain level of losses. As you can see, my portfolio has the worst VaR, what means that I have to consider some changes in my allocation to avoid future losses.

Portfolio risk table in T-Advisor

All these figures will help you to understand your current position and risk. Then you can decide if you have to rebalance totally or partially your portfolio. The strategy is clear: keep your capital and set your portfolio to lose less in bad times and outperform the benchmark in growing times.

The tools that you need to invest efficiently with your portfolio

Think about that you have a portfolio. Fine, you have organised your financial target into a structured composition of stocks, bonds or any asset that agrees your investor profile. However, you are a motivated investor and have interest in monitoring, improving, analysing… and you do not find the right tools to do it.

What kind of tools do you need? First of all, you need a platform that lets you easily create your portfolio with simple steps and implement your assets from your own Excel file or directly on the system. It is important that you can select properly your profile since the very beginning.

T-Advisor tools: screen to create your portfolio

Once you have created your portfolio and included the assets, you need to monitor and analyse it. It is not only about different timeframes for performance or volatility, but also an analysis of the diversification and the risks. As investor, you should take into account that one of the main goals is capital preservation. This means that a right investment strategy should outperform the benchmark in bull periods and have substantially less losses in bear periods. Diversification benefit, which assets contribute more to risk or a comparison with the composite benchmark (or smart benchmark, as it is denominated in T-Advisor) are useful tools for it.

T-Advisor risk analysis screen

This analysis should also include a graphical analysis of the allocation to understand the risk concentration in different concepts.

T-Advisor asset allocation analysis

And finally, what refers to analysis and monitoring, you should have access to a kind of scoring to perceive the quality of your portfolio and some suggestions to improve it.

T-Advisor scoring and suggestions screen

In the case of you perceive that your portfolio needs an improvement, your platform should include a tool to analyse where the troubles come from and optimise the results. The optimisation has to propose an efficient frontier for the portfolio allocation and a proposal of what changes you should implement.

T-Advisor optimiser tool

Efficient frontier optimisation in T-Advisor

And, last but not least, you need an alert system to react when there are deep movements in the markets that affect your portfolio. Your platform should also provide you a system to set the alerts depending your own needs.

Alerts setting in T-Advisor

T-Advisor is your alternative to create, monitor, optimise and modify efficiently your portfolio in a self-directed way. There are many platforms, but they usually have less tools or under payment. You can choose T-Advisor for free to feel the investment experience and control your finances on your own.