INCHCAPITAL – HYBRID ROBO ADVISOR

 

WEEKLY REPORT – 05.15.2023
www.inchcapital.com

 

ASSET CLASS

EQUITY WARNING DEACTIVATED FROM MONDAY 04.03.2023 (EX ACTIVATION OF 02.27.2023)

Equity markets reacted at the end of the week by opposing a seasonal negativity of the month of May, thanks also to the positives deriving from the quarterly news flow companies and the possible exhaustion of further initiatives by central bankers.

The fact is, if on the one hand, there is a penalizing statistic for equity in the May/July period – which can be extended up to November – on the other hand, we still have no signs of selling on equities. There is no warning signal and we do not have bearish pattern on the weekly charts.

Let us go below to see the automated composition of the twenty-one asset classes automatically analyzed by the INCH platform updated on Friday, including the EUR/USD exchange rate risk:

The weekly update of the weights shows a composition still favorable to Equity with a good Big-Tech component, Gold and above all liquidity from the over-night to the short-term, with a clear choice in favor of EURO versus USD for a reward/risk ratio of 2.66

Let’s see which are the seven best asset classes automatically chosen by the INCH platform on the basis of the trends and momentum expressed by their daily and weekly time series. We can choose between two portfolios, one moderate and the other aggressive. Below is the composition of the moderate portfolio, which has an equity contribution of 18.36% versus an aggressive portfolio equity weight of 49.50%.

The seven best asset classes on the basis of trend and momentum show a composition oriented predominantly in favor of liquidity or in any case towards the ultra or short-term curve while the equity component is reduced to the BIG-Tech sector with less than 20%: above all stocks present in the Nyse Fang+ index, as shown in the table below:

POSITION	ASSET CLASS	WEIGHT
1	MSCI W IT – U.S.A. Morgan Stanley	18.36%
2	Gold-USD	18.04%
3	JPM USA 3M CASH	17.52%
4	Lyxor Euro Overnight Return UCITS Acc. ETF (EUR) (LEONIA)	11.65%
5	ICE U.S. Treasury Short Bond TR Index	11.54%
6	iBoxx Euro Corporates TR – Europe	11.46%
7	JPM EMU 3M CASH	11.43%

Why a hybrid robo advisor and not just a robo advisor without human presence?

As you can notice the contribution percentages in USD are greater than EUR. This is a contradiction from the reason descripted above. Well, here are the limits of expert systems or IA. The robo advisor takes what the time series expresses in terms of trend and momentum and gives a fair representation of what is happening.

The analyst, who has the task of analyzing the various risks including exchange rate risks, is required to manage the investable according to the EUR proxies of the aforementioned asset classes. These are mostly ETFs, given the smaller annual expenses against funds.

ETF PICKING

Therefore, for each asset class, the best ETF highlighted in according to an objective method, which we have summarized below in the best CAGR/VOL. ratio of the last three years (Compounded Average Growth Rate): average percentage growth of the ETF divided by the volatility expressed over three years. For example, let’s see which is the best gold ETF or ETC on the basis of the aforementioned performance/adjusted ratio:

The best unleveraged gold ETC is Wisdomtree Physical Swiss Gold ETC acc. (eur) (sgbs) (isin code je00b588cd74 – eur) which listed a three-year reward/risk ratio of 7.4378, i.e. for each unit of risk there are 7.74378 units of compound return were obtained year for the past three years.

Note that the analysis includes a sufficiently large period and is not limited to making a list of ETFs bought and included in the portfolio based on the circumstances of the moment, precisely because the INCH investment approach is not very short/short-term speculative.

This ETC shows the following long, medium and short-term trend below. You can check it every day using INCH platform.

Weekly trend of the last eight years well characterized by increasing tops and bottoms. The weekly line chart is always above the reference moving average.

The spread analysis versus the Bloomberg Commodity index (penalized by the energy component) highlights a continuous over performance of the selected ETF.

INCH platform last three years – weekly bar chart supported by bullish moving average

INCH platform last eight months – daily bar chart supported by bullish moving average.

The trades, weekly and daily, are both bullish with academically inclined moving averages. To compose the portfolio we will proceed in the same way for the other asset classes using the tools of the INCH platform.

 

AUTOMATIC PORTFOLIO BUILDER

If you want to have an automatic portfolio, relating to the equity percentage calculated automatically by the robo advisor, you would choose the risk category closest to the 18.36% – percentage listed at the first place in the table above of the moderate risk portfolio.

In the MIFID INCH portfolios, equity is present at 11.51% as risk class 2 and at 27.30% as risk class 3. In any case, a shareholder at 20% or below 20% requires adopting not a 60–40 or even an 80–20 but a 20–80 thus entering the caution category. It should be also noted that even in the case of the aggressive INCH portfolio, the percentage of equity is currently 49.50%, divided into blend, growth and emerging markets.

Since INCH portfolios are smart beta with weekly rebalancing and risk assessment, they automatically reserve cash when the proposed asset class does not perform, as it should, in terms of trend and momentum.

INCH portfolios, having a hedge that deactivates them, and so are on average less risky than portfolios with no guarantee of hedging. Between the two risk classes, let’s take risk class 3 and see its composition below:

This is a photographic situation of the various positions of the INCH MIFID 3 risk class portfolio, which, through the INCH platform, updated every night, helping to manage a daily nav:

ETF	CLOSE	SIZE	ENTRY PRICE	STATUS	P/L
ISHARES 600 FOOD & BEV UCITS (DE) ETF	83.11	260	79.238	CURRENT	4.89%
ISHRS USD TRSRY BOND 3-7YR USD ETF	129.885	45	129.321	CURRENT	0.44%
IS EUR I.L GOV BD UCITS EUR ACC ETF	222.1	1	221.990	CURRENT	0.05%
AMUNDI EUR MIN VOL ETF	124.58	172	119.884	CURRENT	3.92%
DB IBOXX EURINFL	231.25	1	230.790	CURRENT	0.20%
LYX IB EUR LIQ H	112.79	71	113.080	CURRENT	-0.26%
X EONIA MM C ETF	136.305	41	135.269	CURRENT	0.77%
LYX EMTS INF LIN	160.62	1	160.630	NEW	-0.01%
FRANK LB EU SH M	25.22	208	25.185	CURRENT	0.14%
AMND EURPE VAL N ETF	101.06	208	98.471	CURRENT	2.63%
ISHSVII DLTB ETF	4.4748	1314	4.484	NEW	-0.20%
ISHS II FLOATING RATE BD UCITS ETF	5.0432	1052	5.025	CURRENT	0.36%
LYX SMART OVERNI ETF	100.569	55	100.549	CURRENT	0.02%
SSGA SPDR BLG EMER MARK LOCAL BD ETF	25.601	324	25.507	CURRENT	0.37%
SPDR BLG GLOBAL AGGREGATE BD USD ETF	29.517	199	29.595	CURRENT	-0.26%
SPDR BLG GLOBAL AGGREGATE BD USD ETF	28.268	208	28.278	CURRENT	-0.04%
SPDR BLG 1-3 MONTH T-BILL ETF	104.125	53	102.793	CURRENT	1.30%

This is therefore a photo, which as for the statement of the assets and liabilities of the balance sheet must be integrated by a dynamic component (profit and loss statement and cash flow analysis). Moreover, this, in accordance with ESMA regulations and implemented by the other regulators.

This is the equity line of the INCH MIFID risk class 3 smart beta portfolio that will be subjected to statistical analysis of risks, performance and risk-adjusted performance over the last three and five years. Therefore, it is important to understand that if you highlight a shorter period, you tend to move more towards active trading than active portfolio management.

 

THE BEST SIX STOCKS OF THE FTSE MIB INDEX

In the latter respect, i.e. that of active trading, these are the best six stocks in the FTSE MIB basket proposed by the INCH platform on the basis of the strength expressed by their daily time series – updated on 12 May, 2023:

These are the performances below, given that the entry price correspond to the opening price of the day following the one that generated the signal and this to avoid slippage. Therefore, the entry and exit book value is always equal to the opening price.

These are the performances below, given that the entry price correspond to the opening price of the day following the one that generated the signal and this to avoid slippage. Therefore, the entry and exit book value is always equal to the opening price.

FTSE MIB – BEST COMPONENT	CLOSE	ENTRY PRICE	DATE	STATUS	P/L
UNICREDIT	18.872	18.080	4.4.2023	CURRENT	4.38%
BPER BANCA	2.729	2.620	5.8.2023	CURRENT	4.16%
MONCLER	66.68	60.940	3.22.2023	EXIT	9.42%
A2A	1.6915	1.453	3.21.2023	CURRENT	16.41%
AMPLIFON	36.01	27.500	2.28.2023	CURRENT	30.95%
LEONARDO	12.33		5.15.2023	NEW

CONCLUSION – WEEK 08.05.2023 – 12.05.2023

Seasonal bears are substantially disappointed as there is no sign of the May bear, which however could also strike soon, with minimal potential for the current month expected for the period 17/19 May.

The trend of the Nyse Fang+ index continues to support equity in general, succeeds with the extraordinary mega-cap of its components, always in demand by investors who are preferring to invest in big-caps.

Statistical oversold conditions are starting to emerge in the bond market. Above all, 10-year bonds could create a medium/long-term base on current levels, to activate interesting recoveries in the coming months.

For the first time in a long time, the aggressive seven-asset class INCH multi-asset portfolio has included the JPM GBI BROAD index, which is a good reflection of the 10-year government bond market.

Autore: Emanuele Cecere

 

Disclaimers

All trading or involves RISK. Be aware and accept this RISK before trading. Never trade with money that you cannot afford to lose. Past performance of any trading methodology is no guarantee of future results. No representation is being made that any account will achieve profits or losses similar to those reported.