Off to a Flying Start

10 July 2017  |  Simon Miller
Off to a Flying Start
We are delighted to be able to publish our UK performance for the first time.
Overall, our investment methodology navigated the turbulent year very well and returns are positive across all strategies. Here we discuss some asset allocation changes and how we will be keeping a cool head despite all of the political uncertainty.

One year in, and we can now publish our performance. We opened our UK service to clients in June last year and now have the necessary 12-month track record. Overall, we were very pleased with how our portfolios navigated the turbulence over the year and our clients’ portfolios fluctuated a lot less than individual asset classes. This really does show that our investment methodology and dynamic risk management works.

How Have Markets Performed?

What a year we have had. Our launch date was 20th June 2016, just days before the Brexit vote – we certainly jumped in at the deep end. A few months later and the next challenge came along in the form of Donald Trump but despite these political disruptions, markets survived relatively well and so did our portfolios.

Since then, the S&P 500 has risen 37.6 percent and the FTSE 100, 26.1 percent. Sterling has suffered, falling from £1.46 against the US dollar down to £1.27 and against the euro from £1.29 down to £1.14. This weakness in sterling benefitted global companies in the FTSE 100 as goods from the UK became cheaper relatively. Emerging markets are up 45.2 percent over the year and China is up 56.7 percent. All in all, equities have had a good year.

How Did Our Portfolios Perform?

The political landscape has utterly transformed since 20th June last year but our portfolios still achieved strong positive performance, with the highest-risk category increasing almost 25 percent, after fees. We can attribute a lot of this performance to exposure to the US dollar which performed well against the weak sterling. As mentioned in our recent blog post, Hung, Drawn and Untriumphant, we don’t have any direct exposure to the UK FTSE indices and during the time of the Brexit vote, we had significantly higher exposure to the US and global indices instead of more Europe-focussed ETFs. This shift in asset allocation is a good example of our dynamic risk management at work.

After Brexit and in the lead-up to the US election, due to changes in risk dynamics in the markets, our exposure to the US began to decrease in favour of exposure to emerging markets and more globally diversified ETFs. This change provided the broad diversification needed to overcome the immediate post-Trump turbulence.

Portfolio Performance by Risk Category

Our UK performance since inception (20.06.2016)

Scalable Capital's UK performance since inception (20.06.2016)

Past performance and future projections are not indicative of future performance.
Observation Period: 20.06.2016 to 20.06.2017.
The performance of a risk category equals the median of overall portfolio performance within this category. Dates take our all-in-fee of 0.75% p.a. and ETF-Fee of 0.25% p.a. into consideration. Taxes to be paid are not taken into account. Tax bands are dependent on individual circumstances, therefore they do not facilitate a fair performance comparison. Please contact your tax advisor, should you have any questions regarding tax issues.

Portfolio Returns Outperformed Our Peers

Portfolio returns from June 2016 to June 2017*

Portfolio returns from June 2016 to June 2017*

Past performance and future projections are not indicative of future performance.
*Observation Period ARC Benchmark: 31st May 2016 to 30th June 2017. Observation Period Scalable Capital Portfolios: 20th June 2016 to 30th June 2017. These dates are set due to ARC publishing data on a month end basis while Scalable Capital portfolios were live from mid month.

Performance vs. ARC

Our first Asset Risk Consultants (ARC) comparison went well; we were pleased to see that we outperformed across all relevant risk profiles, despite taking less risk than the comparable ARC categories. The lowest-risk strategy (15 percent) shown returned 13.72 percent over the period compared with 11.39 percent achieved by the balanced asset ARC category. Our highest-risk strategy (25 percent) returned 21.12 percent which outperformed the ARC equity risk category by 2 percent.

It’s important to outperform the ARC benchmarks as they collate the returns of a large number of participating discretionary investment managers. If we outperform ARC, it means that our portfolios are performing better than those of other discretionary managers; validation that our investment methodology works.

The Importance of Controlling Risk

The various regional equity indices mentioned above may have increased overall since June 2016, but let’s not forget their bad days too.

Maximum drawdown (MD) is a measure of the robustness of securities in extreme situations and quantifies the maximum loss over a certain period of time. It is the loss that would have occurred had the investor entered the market at the worst time and exited also at the worst time. For example, as the chart shows, since 20th June 2016 emerging market equities experienced a 12.3 percent loss, despite being up overall by 37.8 percent. Those savers who bought and sold the index on the wrong dates could not have lost a sizeable chunk of money.

We keep risk tightly controlled so that the performance of our portfolios stays more stable than that of the markets. We aim to limit our clients’ exposure to political uncertainty and accompanying turbulence. As you can see, even our highest-risk portfolio (25 percent) had a lower MD than roughly ⅔ of asset classes.

Maximum Drawdown of the Scalable Capital Portfolios Since 20.06.2016 Compared to Major Asset Classes

Maximum Drawdown of the Scalable Capital Portfolios Since 20.06.2016 Compared to Major Asset Classes

Past performance and future projections are not indicative of future performance.
Observation Period: 20.06.2016 to 20.06.2017.

This style of risk management is fundamental to our investment strategy. We use risk projections to bring client portfolios into line with the agreed risk category. We control portfolio risk while market risk fluctuates. By making adjustments to ensure the risk of a portfolio stays aligned to a client’s risk tolerance, we generate smoother, better risk-adjusted returns. Exposure to the potentially punishing short-term risk is far less likely and long-term returns reap the rewards.

Looking Ahead

A few months ago, I doubt many would have expected rule by coalition between the DUP and the Conservatives. Who knows what the next year will bring, but given what we have successfully navigated over the past year, anything is possible.

We like the analogy described in Aesop’s fable ‘The Tortoise and the Hare’. We believe that the steady and disciplined tortoise beats the spritely hare when it comes to investing. The hare that jumps around, trying to outsmart the tortoise, doesn’t win the race. Those that have the discipline to stay invested will see the benefits. To read more, please refer to our blog article: Timing the Market or Time in the Market?.

We will be ignoring the attention-grabbing headlines and keeping a cool head in all environments. We invest for the long term and control risk for our clients so that they can too.

Note: We re-calculate our average ETF fees on a regular basis to make sure they reflect current portfolio averages. The fees mentioned in this article were accurate at the publication date. To view our current fee structure please visit our fees page.

Image: Cara Fuller/

Risk Warning – With investment comes risk. The value of your investment can go down as well as up and you may get back less than you invest. Past performance or future projections are not indicative of future performance. We do not provide any investment, legal and/or tax advice. If this website contains information regarding capital markets, financial instruments and/or other topics relevant for investments of assets, the exclusive purpose of this information is to give general guidance on investment management services provided by members of our group. Please note our Risk Warning and the Website Terms.


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Simon Miller
Formerly a derivatives trader at Barclays Capital, Simon merges capital markets knowledge and business development skills with an academic background in Economics, Business and Mathematics.