LCI Annual Strategy Review December 2017
Performance Overview
2017 was a risk-on year. Synchronized global growth, strong corporate earnings and historically low volatility drove a broad, almost uninterrupted equity rally, with emerging markets and Asia leading and developed markets close behind. Every LCI strategy posted a solid positive absolute 12M return, ranging from +2.1% (Yield EUR S) to +18.4% (Growth USD S) — the spread driven by equity weight (Growth most, Yield least) and by reference currency. Equity was the dominant contributor across every sleeve. The relative picture, however, was decided by currency: a sharply appreciating EUR was a heavy drag on the unhedged USD holdings in the EUR-referenced strategies, leaving all six EUR sleeves behind their (EUR-fund) benchmarks, while the USD sleeves enjoyed the mirror-image tailwind and the CHF Balanced/Growth sleeves beat comfortably.
Performance - 2017
Semi-Passive (S) | Active-Enhanced (SE)
| Semi-Passive (S) | Active-Enhanced (SE) | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Strategy | 12M | vs Bench | p.a. SI | vs Bench SI | Strategy | 12M | vs Bench | p.a. SI | vs Bench SI | |
| LCI Yield CHF S | +5.8% | -39 bps | +5.1% | +108 bps | LCI Yield CHF SE | +6.2% | 0 bps | +5.8% | +178 bps | |
| LCI Balanced CHF S | +10.0% | +238 bps | +7.5% | +304 bps | LCI Balanced CHF SE | +9.5% | +194 bps | +7.8% | +329 bps | |
| LCI Growth CHF S | +14.2% | +176 bps | +10.0% | +272 bps | LCI Growth CHF SE | +12.9% | +46 bps | +9.7% | +251 bps | |
| LCI Yield EUR S | +2.1% | -361 bps | +3.2% | -124 bps | LCI Yield EUR SE | +2.2% | -351 bps | +3.8% | -70 bps | |
| LCI Balanced EUR S | +4.5% | -125 bps | +5.3% | +134 bps | LCI Balanced EUR SE | +4.1% | -162 bps | +5.5% | +149 bps | |
| LCI Growth EUR S | +6.8% | -464 bps | +7.4% | -48 bps | LCI Growth EUR SE | +6.0% | -550 bps | +7.1% | -72 bps | |
| LCI Yield USD S | +7.7% | -122 bps | +6.2% | -64 bps | LCI Yield USD SE | +8.5% | -47 bps | +6.9% | +8 bps | |
| LCI Balanced USD S | +13.0% | +255 bps | +9.2% | +224 bps | LCI Balanced USD SE | +12.7% | +227 bps | +9.4% | +237 bps | |
| LCI Growth USD S | +18.4% | +245 bps | +12.3% | +113 bps | LCI Growth USD SE | +17.0% | +106 bps | +11.9% | +67 bps | |
Returns in reference currency; SI = since inception (annualised). Positive figures in green, negative in red. Source: La Côte Invest.
Since-Inception Cushions
Two years in (since Jan 2016), annualised returns span +3.2% p.a. (Yield EUR S) to +12.3% p.a. (Growth USD S), rising with risk profile and the USD book’s stronger equity run. The since-inception relative picture is now split: the CHF and USD Balanced/Growth sleeves sit +1.1% to +3.3% p.a. ahead, while the 2017 EUR-strength drag has pushed the EUR sleeves and USD Yield slightly behind their benchmarks since launch (down to -1.2% p.a. for Yield EUR S). The cushions built in 2016 narrowed where currency worked against the strategy in 2017.
Best and Worst Contributors
(Sub-asset-class level, direction averaged across strategies; contribution varies widely by sleeve, so no single averaged figure is shown.)
Best contributors: equity did the heavy lifting. North American Equities was the single largest contributor across virtually every strategy, followed by Eurozone Equities and Asia Pacific Equities — the breadth of the rally meant every equity sub-class was net-positive in every sleeve. Within alternatives, gold was a strong positive in the CHF and USD SE sleeves, and Private Equity and Real Estate added across the board.
Worst contributors: there were few. Government Bonds were a small drag in most sleeves as core yields drifted up, the only consistently negative sub-asset class. Gold was a notable sign-flip: clearly positive in CHF/USD terms but roughly flat-to-slightly-negative in the EUR sleeves, where EUR strength offset the USD-priced metal’s gain.
Best and Worst Performers
Best performers: emerging and Asian equity led. Amundi MSCI Korea was the standout, returning roughly +28% to +46% depending on reference currency, with Amundi MSCI India (+20% to +37%) and Xtrackers Euro Stoxx 50 (+10% to +26%) also strong.
Worst performers: USD duration was the weak spot for the EUR books. iShares $ Treasury 3-7Y returned about -11.2% in EUR terms — almost entirely a currency effect as the EUR rose against the dollar — and EUR government bonds were marginally negative. No positions were excluded: there were no matured/expired structured products or zero-weight bad prints in the 2017 window.
FX Impact
Currency was the defining relative factor of the year:
CHF sleeves: FX was essentially neutral (roughly -0.4% to +0.1%).
EUR sleeves: FX was a large headwind (-3.1% to -6.6%), as a strongly appreciating EUR cut the value of unhedged USD holdings.
USD sleeves: FX was a tailwind (+0.8% to +3.0%), with EUR and GBP exposure gaining as the dollar weakened.
Portfolio Changes
Positioning was held steady. Across all 18 strategies there were no material sub-asset-class rotations over the 12 months — the strategic allocations were maintained throughout the rally. The portfolios stayed fully invested in equity through a year that rewarded exactly that.
Editorial Note
2017 was a year that rewarded equity beta, and LCI’s strategies captured it with solid double-digit returns at the Growth end. The decisive relative lesson was currency, not allocation: the EUR sleeves’ unhedged USD equity exposure cost them against EUR-fund benchmarks in a year of sharp EUR appreciation, the exact mirror of the tailwind that lifted the USD sleeves. With hedging policy — not security selection — driving most of the relative dispersion this year, it is the natural thing to watch into 2018.
