LCI Annual Strategy Review December 2018
Performance Overview
2018 was a risk-off year. After a calm start, volatility returned in Q1 and intensified into a sharp Q4 global equity selloff (Fed tightening, peaking growth, US-China trade tensions), leaving almost every major equity market negative for the calendar year and credit modestly lower. Across the 18 LCI strategies every sleeve posted a negative absolute 12M return, ranging from -0.3% (Yield EUR SE) to -8.0% (Growth CHF S) — the spread driven almost entirely by equity weight (Growth down most, Yield least). The decisive story is relative: all 18 strategies beat their benchmark, by between +180 and +780 bps, as diversified bond and alternatives cores cushioned the equity drawdown and the fund/peer benchmarks fell harder. EUR-referenced sleeves led the relative table, helped by a USD tailwind on unhedged holdings.
Performance - 2018
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 | -4.3% | +306 bps | +1.9% | +179 bps | LCI Yield CHF SE | -3.6% | +372 bps | +2.5% | +248 bps | |
| LCI Balanced CHF S | -6.1% | +307 bps | +2.8% | +306 bps | LCI Balanced CHF SE | -5.1% | +410 bps | +3.3% | +359 bps | |
| LCI Growth CHF S | -8.0% | +258 bps | +3.6% | +268 bps | LCI Growth CHF SE | -6.5% | +400 bps | +4.0% | +307 bps | |
| LCI Yield EUR S | -1.5% | +550 bps | +1.6% | +113 bps | LCI Yield EUR SE | -0.3% | +667 bps | +2.4% | +189 bps | |
| LCI Balanced EUR S | -2.9% | +566 bps | +2.5% | +289 bps | LCI Balanced EUR SE | -1.5% | +713 bps | +3.1% | +350 bps | |
| LCI Growth EUR S | -4.5% | +595 bps | +3.3% | +189 bps | LCI Growth EUR SE | -2.7% | +776 bps | +3.8% | +238 bps | |
| LCI Yield USD S | -1.3% | +401 bps | +3.6% | +101 bps | LCI Yield USD SE | -0.5% | +482 bps | +4.4% | +176 bps | |
| LCI Balanced USD S | -4.1% | +334 bps | +4.6% | +265 bps | LCI Balanced USD SE | -2.7% | +472 bps | +5.2% | +323 bps | |
| LCI Growth USD S | -7.0% | +182 bps | +5.5% | +140 bps | LCI Growth USD SE | -5.0% | +378 bps | +5.9% | +184 bps | |
Returns in reference currency; SI = since inception (annualised). Positive figures in green, negative in red. Source: La Côte Invest.
Since-Inception Cushions
Three years in (since Jan 2016), every strategy remains positive and ahead of its benchmark on an annualised basis. Annualised returns span +1.6% p.a. (Yield EUR S) to +5.9% p.a. (Growth USD SE), rising with both risk profile and the USD book’s stronger equity run. The since-inception relative cushion ranges from +1.0% to +3.6% p.a., widest in the CHF and Balanced sleeves whose peer benchmarks lagged most. The 2018 drawdown dented absolute levels but did not erode the relative lead built since launch.
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: the defensive core did its job. Government and diversified bonds were the most consistent positive contributors (the USD diversified-bond book and EUR/EUR-SE government bonds added across sleeves), and Private Equity (Partners Group) was a positive contributor in every SE sleeve. Gold was a notable sign-flip: a small positive in the EUR sleeves (where USD strength lifted the USD-priced metal in EUR terms) but a small negative in the CHF and USD sleeves.
Worst contributors: equity drove the damage. Eurozone Equities was the single largest detractor across virtually every strategy, with North American Equities the next-biggest drag given its high weight. Within fixed income, Emerging Market Bonds and High Yield were the main negatives in the Yield and CHF sleeves.
Best and Worst Performers
Best performers: alternatives and duration held up. UBS Global Real Estate (USDh) returned about +8.0% in the USD sleeves, Partners Group Global Value gained +5.1% to +7.2% depending on reference currency, and iShares $ Treasury 3-7Y added roughly +6.3% in the EUR books. Gold returned +2.7% in EUR terms.
Worst performers: emerging-market and European equity were hit hardest. Amundi MSCI Korea was the worst holding across the board at roughly -18% to -22% in reference currency, with Xtrackers Euro Stoxx 50 (-12% to -17%) and iShares MSCI Canada (-13% to -17%) close behind. No positions were excluded — there were no matured/expired structured products or zero-weight bad prints in the 2018 window.
FX Impact
Currency effects split cleanly by reference currency:
CHF sleeves: FX was essentially neutral (roughly -0.2% to +0.1%) — a small USD gain offset modest EUR and GBP drags.
EUR sleeves: FX was a clear tailwind (+1.2% to +2.5%), as a weaker EUR lifted unhedged USD holdings.
USD sleeves: FX was a headwind (-0.3% to -1.1%), with EUR and GBP exposure costing as those currencies fell against the dollar.
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 set going into 2018 were maintained through the volatility rather than chased. In a whipsaw year this discipline avoided selling into the Q4 trough.
Editorial Note
2018 was a textbook late-cycle, risk-off year, and the value of LCI’s diversified, multi-asset construction showed up exactly where it should: in the relative numbers. Holding the strategic allocation through the Q4 selloff — rather than de-risking at the lows — let the bond and alternatives cores cushion the equity drawdown and kept all 18 strategies comfortably ahead of their benchmarks and ahead since inception. Worth watching into 2019: whether the equity damage proves to be a cyclical reset or the start of a deeper regime shift.
