Volatility and reserve strategy
17 August 2022
Hello,
The markets are recovering so opportunities are scarce, which leaves us time to work on the rest.
I spent some time on the different risk indicators of the fund. The first is historical volatility. This is the most important one, as it is the one that determines the SRRI* of the fund:
Volatility over 5 years > SRRI
between 2% and 5% > 3
between 5% and 10% > 4
between 10% and 15% > 5
If I look at the funds we are compared to, such as Carmignac Patrimoine or Eurose, the level of volatility is similar for all three funds: 8.51% for Carmignac, 8.92% for Eurose and 8.85% for Monocle (all data comes from Quantalys and is over 3 years).
However, if I look at the Max Drawdowns (i.e. the maximum loss observed between a peak and a trough of a portfolio), the result is significantly different. Carmignac is at -16.35%, Eurose is at -18.61% but Monocle is at -8.87%.
Similarly, if I look at the Downside Risk (the calculation of volatility only on downward movements), we are at 6.40% for Carmignac, 7.11% for Eurose and 4.95% for Monocle.
Where do these differences come from? From the strategy of the reserve. The fact that we 1) "hold our reserves", i.e. invest little at the top of the cycle and 2) "allocate our reserves", i.e. invest massively at the bottom of the cycle, means that our declines are smaller in absolute terms than our increases.
To illustrate: the average of our worst performances over five weeks is -2.73%, whereas the average of our best performances over five weeks is +4.39%.
The first of these five best weeks was 9 April 2020, when the fund gained +7.25% in one week. We had just invested in the COVID panic at prices disconnected from fundamentals, and tempers were settling. For example, one of our lines, G4S, had just announced a sale of its business, and the share price had risen from 70 to 107 in one week, which had a 2% impact on the fund.
All this was great news for our investors - including me. But it was bad news for our volatility. If I replace this "extraordinary" week at +7% with a "superb" week at +2%, the volatility of the 3-year fund falls from 8.85% to 7.95%. That's almost one point less.
I will therefore integrate these different risk indicators in the next Factsheet in order to give the most accurate picture of our management. If you have any other wishes for the redesign of the factsheet, I would be delighted to hear them.
Have a great week,
Charles
*The synthetic risk and performance indicator associated with a fund. This indicator takes the form of an integer between 1 and 7 based on the volatility of the fund.
Disclaimer
This presentation is a promotional document. The content of this document is communicated by and is the property of Monocle Asset Management. Monocle Asset Management is a portfolio management company approved by the Autorité des Marchés Financiers under number GP-20000040 and registered with the ORIAS as an insurance broker under number 10058146. No information contained in this document should be construed as having any contractual value. This document is produced for information purposes only. The prospects mentioned are subject to change and do not constitute a commitment or a guarantee. Access to the products and services presented here may be subject to restrictions for certain persons or countries. Tax treatment depends on individual circumstances. The fund mentioned in this document (Monocle Fund SICAV) is authorized for marketing in France and possibly in other countries where the law permits. Before making any investment, it is advisable to check whether the investor is legally entitled to subscribe to the fund. The risks, costs and recommended investment period of the funds presented are described in the KIDD (key investor information documents) and the prospectus, available free of charge from Monocle Asset Management and on the website. The KIDD must be given to the subscribers before the subscription. Past performances are not a reliable indicator of future performances. Monocle Asset Management cannot be held responsible for any decision taken or not taken on the basis of information contained in this document, nor for the use that could be made by a third party. The investor may lose all or part of the amount of capital invested, as the funds are not capital guaranteed.
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