C8 Product Update – Aug 2022

Please find below monthly updates for the following C8-driven products: C8 Corporate Bond Monthly Update, C8 Active World ESG Index, C8 Multi Asset Global Opportunities Certificate, C8 China Futures Access TRS, C8/ Greenblue Good Governance US Equity L/S Certificate
BY JON WEBB

 

Please find below monthly updates for the following C8-driven products:

  • C8 Corporate Bond Monthly Update
  • C8 Active World ESG Index
  • C8 Multi Asset Global Opportunities Certificate
  • C8 China Futures Access TRS
  • C8/ Greenblue Good Governance US Equity L/S Certificate
  • Corporate bond markets rebounded smartly in July, a move  primarily led by a partial retracement in the upswing in US Treasury yields. Global inflows into corporate bond ETFs in July likely more than recouped June outflows while several major US asset managers flagged arguably attractive US corporate bond valuations. Despite the July rebound, the major S&P corporate bond total return indices still post substantial year-to-date losses (particularly in the context of the volatility of this asset class). In general, our replication/tracker portfolios modestly outperform the relevant benchmark indices year-to-date.
  • One particular bright spot has been the bounce-back in the C8 EUR ESG 30 and the ESG factor portfolios. These span EUR investment grade bond issued by publicly listed companies in the S&P ESG indices. The ESG Factor portfolio of 55 bonds selects issues based on carry, defensive characteristics, value and momentum. This C8 Index has outperformed the EUR IG Large Cap Index by roughly 375 basis points so far in 2022 whilst meeting an ESG mandate (see chart below).
  • The Active World ESG index rose 4.6% in July as equities broadly recovered after the sharp sell-off seen in equity markets over the previous few months. This leaves the index up 1.8% since inception.
  • In terms of the relative performance to a benchmark global equity index, the ESG index outperformed during the equity drawdown in June by 1.5 percentage points. With equity markets recovering in July, overall performance has been broadly in line with the benchmark. This fits with our goal of creating a global ESG index that shows no loss of performance to a non-ESG global equity benchmark.
  • Indeed, C8’s equity factors target specific drivers of equity returns and, in this case, can provide some diversification relative to traditional market-cap weighted indices, as the index will benefit if the trend towards global mega-cap stocks is not sustained.
  • The C8 Active World ESG Index is available as an Actively Managed Certificate (AMC) on private placement from Credit Suisse.
  • The C8 Multi Asset Global Opportunities certificate commenced trading in May. C8’s Multi-Asset index was created to meet the demands of investors who seek diversified multi-asset investments, combined with an innovative rule-based allocation approach. The certificate is listed on the Frankfurt and Milan exchanges, or available directly from Cirdan at NAV for larger amounts. Importantly, the C8 Multi-Asset certificate is available for both retail and qualified investors.
  • The ‘Multi-Asset Global Opportunities’ certificate dropped a further 2.4% in July, as the model continues to reorientate positioning to the new high inflation environment. A reversal in a number of key trends (in particular, in equities and bonds) impacted the S&P Systematic Global Macro index which contributed a loss of 2.8% in the month. The FX Combination and the US ‘Good Governance’ equity premia added a combined 40bp to performance whilst the performance of the rates and commodity combinations were broadly flat. The portfolio rebalancing has resulted in a zero weight for Risk Parity at present.
  • In terms of the overall performance since inception, only a small subset was traded in May, whilst in June, performance was hit hard by the sell-off in all asset markets. However, C8’s allocation process is designed to adapt to changing trading environments, and we note this index combination has a strong long-term track record. With this in mind, we believe that the certificate will perform well going forward.

Available as a TRS (Total Return Swap) 

  • The monthly newsletter for July 2022 is attached above, showing the C8 China Futures strategy up 0.76% for the month, driven mostly by gains within the Agriculture sector (e.g. Corn & White Sugar). This puts the strategy +2.75% YTD.
  • The recent stimulus attempts in China seem to have stalled since the Chinese PMI again came below 50 and most commodity markets have seen sell offs as global recession fears take hold of investor mindsets.Positively performing short positions in soft commodities outweighed the negatively performing long positions in other sectors within the strategy due to the reduced overall position sizing of the system.
  • The ongoing lack of correlation to other markets and asset classes to provide a unique set of alpha returns, makes this strategy an appealing diversifier within a portfolio.  We are seeing strong demand for access to this strategy from investors and managers, given its limited capacity and the lack of independent competitors with a track record as long as C8. To that end, we are also in the midst of exploring the delivery of this strategy, in conjunction with a partner, via a fund solution.
  • The ‘Good Governance’ certificate rose a further 0.3% in July, with the certificate now having recovered nearly 3% from the energy shock lows. In July, there was a strong performance in the S&P though this did not provide much outperformance for the long portfolio. Service companies were the standout performers, with no strong theme driving the Good Governance longs. On the downside, there was one major negative in Cincinnati Financial, which reported a Q2 loss set against expectations of a profitable quarter.
  • The high volatility in US equities has led to a reduction in overall exposure during 2022, and the certificate is now 108% long and 83% short. The net long position did rise slightly this month from 24% to 25% of capital.

Other posts

Thoughts From the Divide:  Tremendous

BY JON WEBB
While there is likely some argument within the Administration as to whether supply chain shocks are both necessary and sufficient or simply necessary (mirrored by the Fed’s own divergence in views), it’s clear that Yellen and the White House are not too concerned about the Philips Curve, nor seem to put stock in John Cochrane’s “fiscal theory of the price level”. After all, Yellen is still quoted as saying that the US is on a responsible fiscal path, despite the deficit (which is, as Mosler notes, the public’s surplus). Or perhaps they think that with some proper cajoling, the greedflation genie can be put back in the bottle (at least temporarily) as CEO’s find a renewed sense of civic virtue and community? We wouldn’t hold our breath. Read more →

Thoughts From The Divide: Little Tweaks and Adjustments

BY JON WEBB
“I actually think we’re going to see inflation be choppy, and I expect that we’ll see employment stay robust.” As we noted back in May, “one swallow does not make spring”. But if we are to follow the advice of Keynes/Samuelson, when information changes, we should adjust our conclusions. Blast! The trick is, of course, balancing the two ideas to adjust conclusions when the evidence suggests such an adjustment is appropriate: you might call it Bayesian inference. The above quote from Bostic illustrates the problem, with the Atlanta Fed head implicitly stating that he will be ignoring any hot inflation prints. Read more →

Thoughts From The Divide: Downpayments on a Dream

BY JON WEBB
Buddhist teaching holds that all things are in a constant state of flux, implying that we should be prepared to let go of even our most cherished hopes. The John Burns affordability index seems to confirm this, suggesting that, at least for the time being, the American dream of home ownership is out of reach for new buyers. John Burns’ index includes the costs of a 30-year fixed-rate mortgage, amortization, insurance, and property taxes (naturally, it’s in the small print). Read more →
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