Update on ECHIQUIER QME
Echiquier QME is an absolute return UCITS that uses quantitative models in its management. The fund will turn seven years old in November and invests in equity indices, Government bonds, currencies and commodities with the aim of benefiting from bullish and bearish market trends alike.
Strategies
The fund uses two complementary strategy blocks. The first, which covers around two-thirds of the allocation, is made up of momentum strategies that aim to capture medium- and long-term trends across all asset classes. These trends, which are triggered on a regular basis for several reasons—including fundamental and behavioural— generate most of the fund’s long-term performance. However, there are periods during which momentum strategies struggle, such as during market downturns or when there is no clear trend. In order to mitigate the negative impact of these periods, your fund has a second block of satellite strategies. These strategies exploit potential sources of yield, such as mean reversion phenomena, for example. This second block covers one-third of the fund’s allocation.
In terms of underlying assets, a key adjustment in 2022 has been the implementation of a commodities allocation that will represent 40% of the fund’s risk budget on average. This new asset class will provide significantly increased diversification potential within the portfolio, especially in an environment of returning inflation.
Positioning
Fixed-income products generated the majority of performance over the first half of the year, benefiting from strong upward trends in yields across all geographic regions. Similarly, medium-term dollar momentum was a strong contributor to our currency allocation. In contrast, equity indices detracted from performance as they were hobbled by an unfavourable signal-to-noise ratio early in the year.
At the end of the first half of the year, the portfolio was relatively balanced, albeit with a slightly higher weighting of bearish positions on equity indices, and the beta was around -30%. Although this is affecting all geographic regions, the model is particularly pessimistic on emerging markets.
Bearish exposure to fixed-income products dropped late in the first half of the year but remains material across all markets.
On currencies, the bullish position on the dollar against the other developed currencies remains significant, while positions on emerging currencies including the Mexican peso and Brazilian real provide diversification within the asset class.
Your fund is defensively positioned and continues to fulfil its role in a turbulent environment. Furthermore, its adaptive functioning will enable it to capture future bullish and bearish trends. We remain convinced that an allocation to this strategy is a particularly effective way to diversify a portfolio.