Annual performance update December 2015 All Copia model portfolios except models 1 and 2 beat their corresponding comparators in the year that ended in December 31, 2015, while all Copia models beat their comparators in the year that ended in December 31, 2014. Looking back at 2015 Total Return Index Return Global Financial Markets In 2015, global equity markets finally took a break from their non-stop rally that started at the end of the financial crisis in 2009. A number of forces, from the Greek debt default scare to the slowdown in China, acted as dampeners to the six-year rally. Accounting for dividends reinvested, the S&P 500 posted an uninteresting 0.75% gain as shown in Figure 1, but the markets were in no way uninteresting, instead it was a volatile end to the year. At one point in July the S&P was up 4.1% for the year and within a span of a month, turned negative for the year being down 8.4% at the end of August. The markets spent the remaining second half of the year being choppy and recovering from the collapse. The volatility wasn t just restricted to the S&P 500 but was true for all global markets as the Risk-On / Risk-Off scenario kept the markets shifting from buying on dips to selling on the probability of realizing a systemic collapse. Bond markets did play as a safe haven during market collapses but the impending Fed rate hike kept weighing on them throughout the year. The theme that worked in 2015 was riding the Central Bank easing tide. Equities in Europe and Japan did particularly well, as their corresponding Central Banks expanded their balance sheets with Quantitative Easing. The US Dollar rallied against world currencies as investors priced in the impact of the Fed rate hike. FTSE 100 1.32% FTSE 250 11.17% S&P 500 0.75% NASDAQ 100 9.75% EUROSTOXX 50 6.42% EUROSTOXX 600 9.60% MSCI Japan 9.57% MSCI China 7.82% Brent 35.89% Dollar Index 9.26% GBPUSD 5.40% GBPEUR 5.40% GBPJPY 5.05% US 10 year Yield 0.10% German 10 year Yield 0.09% UK 10 year Yield 0.20% Japan 10 year Yield 0.06% Funds used in Copia Portfolios Throughout 2015, Copia portfolios invested in the funds (shown in Figure 2) which are part of our authorized investment list. Our higher risk portfolios primarily invested in NASDAQ-100, Europe Ex UK, Japan, UK Property, the FTSE 100 Min Variance fund, the FTSE 250 and the Emerging Market Equities fund. All of these funds performed well, returning positive gains in a volatile 2015, except for the Emerging Markets fund, which was down 10%. On the lower-risk spectrum, our fixed income funds performed modestly, given the lack of yield environment in global bond markets. Since most Copia models continue to beat their comparators most of the time, we can confidently state that the tactical allocation strategy took advantage of most of the upswings, even if it could not avoid some of the downturns in 2015. Bloomberg Ticker Fund Name Figure 1: Source: Bloomberg Sector Return HSBFTCA HSBC FTSE 250 Index C Acc Equity - UK 10.97% UKMV Ossiam FTSE 100 Min Var ETF Equity - UK 4.70% IUKP ishares FTSE EPRA/NAREIT UK Property Property - UK 10.88% VUSEIDA Vanguard S&P Total Market Fund Equity - USA 5.93% EQQQ PowerShares EQQQ Fund Equity - USA 14.76% IGUS ishares S&P 500 GBP Hedged Equity - USA 0.35% UC60 UBS MSCI EMU 100% GBP Hedged Equity - EU ex UK 8.83% VANEMPA Vanguard Emerging Markets Index Equity - EM 10.05% UC62 UBS ETF-MSCI Msci Japan GBP Hedged Equity - Japan 8.21% SHYU ISHARES $ HIGH YIELD CORP BoND Fixed Int - $High Yld 0.99% SEMB ishares JPMorgan $ EM Bond Fixed Int - EM 6.02% VANGRSA Vanguard Global Bond - GBP Hedged Fixed Int - Global 1.25% IS15 ishares Corporate Bond 1-5yr Fixed Int - GBP Corp 1.47% IGLS ishares FTSE GILTS UK 0-5 Fixed Int - GBP Gov 0.72% Figure 2: Source: Bloomberg
Grexit Equity markets had a flying start in 2015 but just as they gained momentum in June, the Greek government, burdened by mounting debt, halted talks with its creditors and called for a referendum on bailout terms. This delay led to Greece defaulting on its 1.6bn payment to the International Monetary Fund (IMF). The people of Greece overwhelmingly voted NO to its creditor s conditions of more austerity, but after a gruelling few days of discussion between the Greek government and the Eurozone leaders, a new deal was struck and Greece was given a third bailout. Fearing contagion effects from Greece, global equity markets remained volatile until a bailout package was confirmed. Figure 3: Equity markets mixed in 2015. Source: Bloomberg 140 130 120 110 100 90 UK Equities US Equities European Equities Japanese Equities Emerging Market Equities 80 The Dragon loses its shine By mid-2014, the Chinese stock markets had started rising steeply gaining over 50% in the latter half of 2014 and continued the massive rally in the first half of 2015 by rising another 50%. The rally was fuelled by leveraged retail investors taking over 2x leverage on all investments in the stock market. With the Greek crisis rampant in mid-2015, the Chinese markets took a sharp correction. Investors, being heavily leveraged, started realizing a much larger loss and received margin calls from brokers, triggering a major sell-off due to forced liquidation of assets. As the sentiment turned negative, the weak Chinese macroeconomic data exacerbated the situation. To stem the market Shanghai Stock Exchange Composite Index 5,400 5,200 5,000 4,800 4,600 4,400 4,200 4,000 3,800 3,600 3,400 3,200 3,000 2,800 rout and improve investor sentiment, the Figure 4: Equity markets end mixed in 2015. Source: Bloomberg People s Bank of China (PBOC) has injected over $50bn into the economy, cut its benchmark interest rates twice by 25 bps and de-valued the Yuan by over 6% against the US Dollar since then. Contagion risk and a global slowdown driven by China continue to plague the equity markets across the world.
Black Gold is no longer coveted With the widespread use of technology called Fracking, the US has doubled its oil production in the last five years. This change in the production dynamics, together with a slump in demand, has brought the price of Crude Oil from over a $100 in 2014 to $35 at the end of 2015. As seen in the charts - Figures 5 and 6, current crude oil inventories in the US are much above its five-year range, indicating an extremely oversupplied market. Normally the OPEC countries would adjust their production to counter the increased oil supply in the market but this time OPEC, led by Saudi Arabia, have done the opposite. OPEC has increased its crude oil production with a view to keeping its existing market share in the world and in order to drive out the expensive oil producers in the US. This move has pushed oil prices to extreme lows and has had detrimental effects on commodity driven economies like Russia and Venezuela. Forecasts from analysts across the banking sector are for crude oil to touch $20 in 2016, as OPEC is not seen on changing its stance. $70 $65 Brent WTI $60 $55 $50 $45 $40 $35 $30 Figure 5: Source: Bloomberg Figure 6: Source: Bloomberg The most awaited moment of 2015 The Fed Rate Hike 2015 saw a lot of volatility and some of it could be attributed to the anticipation of investors regarding the timing of the Fed rate hike. By mid-2015, most market participants were expecting the Fed to raise rates in its September Federal Open Market Committee (FOMC) meeting. But due to extreme volatility in the Chinese markets, the Fed decided to hold off the rate hike in September, citing that a slowdown in emerging markets could restrain global economic activity and may cause deflationary pressures. As the equity markets stabilized in October and November 2015 and US macroeconomic data being supportive of a strong economy, the US Fed, led by Chair Janet Yellen, took the historic step of raising rates by 0.25% from 0.25% to 0.5%. Median Fed Fund Rate Actual Projection 4.0% 3.4% 3.5% 3.5% 3.0% 2.6% 2.5% 2.0% 1.5% 1.4% 1.0% 0.5% 0.375% 0.0% 2014 2015 2016 2017 2018 Long Run Figure 7: Source: Federal Reserve of the United States
The US Dollar rallied through 2015, with the US Dollar Index, a measure of the value of the United States dollar relative to a basket of foreign currencies, rising 9% in 2015. The US Fed s hawkish projections, along with easy monetary policies from the European Central Bank (ECB), Bank of Japan (BOJ) and the PBOC, sets the stage for the US Dollar rally to continue in 2016. 104 102 100 98 96 94 92 90 US Dollar Index 88 Figure 8: Source: Bloomberg Looking ahead in 2016 2016 started off on a volatile note and this theme is expected to continue throughout the year. Equity markets are likely to bounce back from large sell offs as central banks in Europe, Japan and emerging markets would most likely expand their quantitative easing programmes. Developed market economies are expected to continue their growth, but growth may be subdued as emerging markets led by China go through a slowdown. Commodity focussed companies and countries, especially heavily indebted ones, are expected to face headwinds as the supply glut is not expected to ease off. Divergence of the US Fed from other major Central Bank policies is expected to fuel the appreciation of the US Dollar versus other global currencies. 45 40 35 30 25 20 15 CBOE VIX (Implied Volatility Index) 10 Figure 9: Source: Bloomberg
Table 1: Annual performance of Copia portfolios in the year ending 31 December 2015 Model Portfolios Performance from 31-Dec-2014 to 31-Dec-2015 % Equity Outperformance IA Copia IA IA Sector Model 1-0.02% -0.19% 0.11% Money Market -0.13% -0.30% Model 2-1.00% -1.07% 0% -1.11% -1.18% Model 3 1.84% 1.45% 0.67% 35% 0-35% Mixed Investment 1.17% 0.78% Model 4 2.48% 2.32% 56% 1.81% 1.65% Model 5 3.64% 3.48% 1.45% 67% 20-60% Mixed Investment 2.19% 2.03% Model 6 3.96% 3.98% 81% 2.51% 2.53% Model 7 3.75% 3.61% 2.79% 89% 40-85% Mixed Investment 0.96% 0.82% Model 8 3.88% 3.99% 98% 1.09% 1.20% Model 9 3.72% 4.22% 98% 0.93% 1.43% Model 10 3.82% 3.87% 2.07% 98% 100% Flexible Investment 1.75% 1.80% Returns based on Total return, assuming income is re-invested immediately and realigned on due dates Table 2: Annual performance of Copia portfolios in the year ending 31 December 2014 Model Portfolios Performance from 31-Dec-2013 to 31-Dec-2014 % Equity Outperformance IA Copia IA IA Sector Model 1 3.43% 3.41% 0.10% Money Market 3.33% 3.31% Model 2 3.32% 3.31% 0% 3.22% 3.21% Model 3 6.29% 6.19% 5.12% 35% 0-35% Mixed Investment 1.17% 1.07% Model 4 7.24% 7.11% 56% 2.12% 1.99% Model 5 6.17% 6.14% 5.07% 67% 20-60% Mixed Investment 1.10% 1.07% Model 6 6.04% 5.95% 81% 0.97% 0.88% Model 7 6.51% 6.38% 4.99% 89% 40-85% Mixed Investment 1.52% 1.39% Model 8 5.73% 5.81% 98% 0.74% 0.82% Model 9 5.89% 5.92% 98% 0.90% 0.93% Model 10 5.70% 5.90% 4.96% 98% 100% Flexible Investment 0.74% 0.94% Returns based on Total return, assuming income is re-invested immediately and realigned on due dates
Table 3: Performance of Copia portfolios since launch: 28 October 2013 31 December 2015 Model Portfolios Performance from 28-Oct-2013 to 31-Dec-2015 % Equity Outperformance IA Copia IA IA Sector Model 1 2.80% 2.59% 0.21% Money Market 2.59% 2.38% Model 2 1.25% 1.15% 0% 1.04% 0.94% Model 3 8.16% 7.60% 5.41% 35% 0-35% Mixed Investment 2.75% 2.19% Model 4 9.97% 9.61% 56% 4.56% 4.20% Model 5 10.37% 10.14% 6.89% 67% 20-60% Mixed Investment 3.48% 3.25% Model 6 10.36% 10.24% 81% 3.47% 3.35% Model 7 10.77% 10.35% 8.71% 89% 40-85% Mixed Investment 2.06% 1.64% Model 8 9.97% 10.13% 98% 1.26% 1.42% Model 9 10.01% 10.54% 98% 1.30% 1.83% Model 10 9.98% 10.24% 7.98% 98% 100% Flexible Investment 2.00% 2.26% Returns based on Total return, assuming income is re-invested immediately and realigned on due dates Note: IA Sectors were sourced from FE Analytics Disclaimer Exchange Traded Funds used in Copia models typically have high share prices. Small investments are unlikely to be able to invest into the asset allocation intended by the quantitative model due to the typically high share prices of ETFs and therefore a small investment may not achieve the investment returns expected. The performance shown represents the results of the model portfolio managed by Copia Capital Management. Copia model performance and comparisons are shown gross and take no account of the Novia platform charge or Copia Capital Management charge. Individual investor performance will differ due to factors specific to the investors account, trading drag and charges and the effect of Platform, Investment management and Adviser charges. This illustrative document is intended for investors where advice has been given by Advisers. The value of investments may go down as well as up, investors may not get back the amount invested, figures quoted relate to the past and past performance is not a reliable indicator of future. Models are prepared in accordance with tolerance to risk and not client circumstances and information is from given sources to be reliable and accurate, which Copia cannot warrant for accuracy or completeness. PCU2015-0116