During 2021, we launched a new kind of discretionary mandate called Symphony. As mentioned above, this solution contains only two asset classes: equities and cash. Based on our research, the risk profile of this type of mandate can correspond to that of a traditional balanced portfolio (equities/bonds) if, and only if, the allocation between the equity and bond pockets is managed in a very flexible and dynamic way.
Therefore, this type of management cannot be based on a traditional investment committee. Indeed, the emotional and subjective nature of the participants in this type of committee is too important. Moreover, a consensus-based management process rarely achieves the necessary degree of flexibility and responsiveness. In our view, only a disciplined, systematic and quantitative approach can overcome this emotional aspect and manage changes in equity vs. cash allocations in the portfolio in a completely objective manner.
The Syz Symphony systematic investment process is based on a pragmatic quantitative approach. By this, we mean an approach that is neither algorithmic nor optimised based on the recent or distant past. Indeed, the poor performance of purely algorithmic models in 1997 (LTCM) and in 2020 (the year when the main quantitative hedge funds delivered poor performance) demonstrates that over-optimisation is far from guaranteeing good performance.
This solution is aimed at investors seeking attractive returns while having a low tolerance for downturns. It is a service offering that complements a traditional portfolio management approach.
The systematic investment process aims to build a flexible and dynamic portfolio in cash and equities (only in US equity ETFs and/or European equity ETFs). The asset allocation decisions are based on 11 market indicators divided into 5 categories: market trend, volume, sentiment, technical indicators and market breadth.
Changes in equity/cash allocation in the portfolio are based solely on the signals provided by these indicators. As shown in the chart below, the aggregation of the scores generated by the indicators gives an overall score that determines the equity allocation: a high score can fix the equity allocation up to 100%. A low score can lower the equity allocation to 0%. Allocations are adjusted on a weekly basis.