Update on Echiquier QME
As an absolute return UCITS fund, Echiquier QME uses quantitative models as part of its management. The fund, which will celebrate its fourth anniversary next November, is investing up and down in equity indices, government bonds, short-term rates and currencies. Positions are taken via simple products: exchange-listed futures contracts that provide a diversified, liquid portfolio, thus seeking to limit counterparty risk as much as possible.
Echiquier QME uses two complementary sets of strategies. The first, for about two-thirds of the allocation, consists of momentum strategies that aim to capture medium/long-term trends across all asset classes. These trends, which are triggered regularly for various reasons (fundamental, behavioural, etc.), provide the bulk of the fund’s long-term performance. But there are periods when momentum models experience difficulties (reversal or absence of trends). To limit the negative impact of these periods, your fund has a second set of strategies, called satellites, that make it possible to exploit other potential sources of return, such as mean reversion phenomena, for example. This second block represents the last third of the allocation.
2019 was a very favourable year for the “core” strategy, with strong trends in the sovereign bond and short-term interest rate sectors. On the contrary, this environment of negative rates, which is difficult for discretionary managers to grasp, is clearly readable for quantitative strategies that do not suffer from anchoring bias and can thus more easily adapt to the new paradigm.
The fund’s most significant exposures are to fixed income products, mainly sovereign bonds, with significant upward positions in European bonds (Germany, France, United Kingdom, Switzerland, Italy) as well as US, Japanese and Korean fixed income products. These positions contribute significantly to the fund’s good performance over the past few months.
Exposure to equity indices fluctuated over the year. Significantly negative in the first quarter due to the downward momentum at the end of 2018, it became slightly positive in the second quarter following the market rebound. After a summer marked by the weakening of the equity markets, exposure is again negative, with a negative sensitivity of 20%. The most bearish positions are in emerging markets (Mexico, India, Korea, China and South Africa), but also Japan and some European countries such as Germany and Spain. The positions that remain currently bullish are in the United States, Canada, Australia, some European countries (France, Netherlands, Italy, Switzerland, United Kingdom), as well as Taiwan and Brazil.
On the currency side, the portfolio remains significantly bullish on the US dollar against most other currencies, both developed and emerging. However, there are a few exceptions: the “flight to quality” has led to a bullish position in the yen in recent months, while the Mexican peso and the ruble have benefited from satellite strategies.
Defensively positioned, your fund is adapted to an environment less favourable to risky assets.
Over the last month, it protected diversified portfolios by achieving a +4% return, while the MSCI World fell by 2.5%. At a time when volatility is returning to the markets, Echiquier QME is fulfilling its decorrelating role.