Looking into The Rear Mirror ...
Since September 2014, we publish the trail of our implied views and COP model's transactions on a daily basis as a key feature of the Bentin Daily, our premium research service.
The section below summarizes some of the key views that we held and the aggregate resulting performance achieved by the model portfolio since inception as well.
Year 1: Q32014-Q42015
In late 2014-2015, we correctly called EURUSD topping out and held a short EURUSD position from 1.35 all the way down to 1.10. This position was held on a nominal of 25%-30% of the portfolio, accounting for most of the COP performance that year. The EUR correction was by far the most important FX development that year with the exception of one (which we saw coming and did not play). We did warn in our letter three days before the Swiss peg was abandoned that there was a non-trivial risk that this would happen because the situation had in certain ways become untenable. We refrained from issuing a call or holding a short EURCHF position because we felt uncomfortable doing so but we were not caught the wrong way in the ensuing tsunami.
Year 2: 2016
In 2016, we issued a timely “bottoming out” call on the Russian ruble (and Russian equities). We held 20% of our risk adjusted market exposure (not the same as 20% nominal) on this view for most of the year. We also held a structural long overweight nominal position of 25%-30% on Gold for the whole year. We did not anticipate Brexit but entered the day of the vote long EURCHF and long EURGBP, knowing that in the case of a Brexit vote, GBP would crater while the “Remain” vote would justify a partial unwind of CHF excessive strength. We reaped good profits (half the year’s performance) being short GBP (held on a 15% nominal of the portfolio) and booked only a small loss on the commensurate long EURCHF position. In the last months of 2016, we parted ways with dominant expectations of further broad based USD appreciation. Instead, we expressed the opposite view holding an overweight exposure on RUB, MXN and ZAR, mostly against USD. All three positions considered together accrued positively to last year’s performance although we shed a significant part of this EM outperformance, remaining long MXN from a level that we thought represented excessive weakness.
Year 3: 2017
So far YTD, the currency overlay program good performance resulted mainly from the same large EM currencies overweight held at the end of last year against a mix of DM currencies which have all fallen against EM since then. We also hold a large and structural (30% in nominal terms) overweight exposure to gold and we are generally distrustful of the USD at this stage.