Mechelany Advisors’ MODEL PORTFOLIO returned +22.47 % per annum for 4.5 Years, illustrating the superiority of active management over passive investing

Jacques Mechelany

Published in

Mechelany Advisors

5 min readAug 9, 2018

Mechelany Advisors’ MODEL PORTFOLIO has been running since the 1st January 2014 in a fully transparent way on our website.

Its purpose is to reflect the translation into performances of the implementation of our Investment Calls and Analytical conclusions through a unique and disciplined investment process

Over 54 months, we published its NAV and the Transactions effected every week, inclusive of transaction fees of 0.3 % every time, but without management fees.

This constant flow of information and full transparency enabled our Readers to benefit from our investments ideas and check the reality of the trades that, for most part, were equally implemented in real portfolios and funds.

The other purpose was to demonstrate the added value of active management when compared to passive investment through trackers and indexes.

Over the past 4.5 years, our model portfolio delivered positive performances every year, despite the volatility of the Chinese equity markets in 2015, the sharp correction of 2016 and the volatile markets of the first half of 2018.

Over 4.5 years, our Model Portfolio returned +22.47 % per annum and a cumulative performance of 149.05 %, outperforming all the main equity indexes around the world by a wide margin.

The tables below compare our Model Portfolio to the largest World Indexes, ETFs, and individual equity markets.

Over the period, even the best performing equity index, the NASDAQ only delivered +13.40 % per annum ( against + 22.47 % for our Model Portfolio ) and the second best, China’s CSI 300 only returned +9.19 % both gross of fees.

Performance Comparison

Investment Process

Our fundamental investment case, based on 35 years of managing Pension funds, Institutional Clients’ assets and Private Clients’ portfolios in Bonds, equities, commodities and forex, is that constrained asset allocations parameters are detrimental to long term returns.

There is a time to be invested in particular asset classes, countries and industrial sectors and these trends can take years to unfold.

The management of Mechelany Advisors’ MODEL PORTFOLIO is not constrained by any particular benchmark and invests in most asset classes through highly liquid instruments, using a constant overlay of FOUR analytical frameworks:

1. TOP-DOWN MACRO-ECONOMIC ANALYSIS:

Asset classes are primarily driven by liquidity conditions and go through extended periods of valuation expansion or contraction, depending on economic and monetary conditions.

Monetary conditions are determined by Central Banks and their mandate to sustain economic growth while containing inflation, or even deflation as was the case for the past 10 years.

Assessing the structural, macro-economic, inflationary and monetary trends using long term macro-economic analysis such as Kondratieff and structural inflation cycles is key to successful positioning and optimum risk-reward.

Over decades as managers of institutional fixed income portfolios, MECHELANY ADVISORS developed an in-depth knowledge of macro-economic and structural development tools.

Our first hand and in-depth experience of Japan, Asia, China and Emerging economies since the 1980s have given us a global, reliable and coherent view of the growth, inflation and structural economic trends of the world and of their interactions.

2. BOTTOM-UP VALUATION AND INVESTMENT SELECTION

The debate about VALUE INVESTING and MOMENTUM INVESTING in equities is
made irrelevant by the methodology used by the Index Sponsor and its Advisors.

Long-term valuation tools such as cyclically-adjusted Price/Earnings ratios in equity markets and individual equities provide the positive risk/reward cushion needed in the investment selection process, while the investment timing is determined by identifying turning points and nascent momentum trends.

Focusing on short term and long-term REAL interest rates trends and risk premiums trends fulfills the same purpose for currencies, fixed or variable bonds and money- market instruments.

In-depth physical supply / demand analysis together with financial flow of funds and speculative positions monitoring provides the background for commodities.

Changes in structural conditions — the emergence of the Chinese consumer for instance — or in industries — on-line sales versus brick and mortar, renewable energies versus fossil fuels, electric vehicles and shared transportation versus traditional vehicles, genetics versus traditional pharma — are also key to regional and sectorial allocation.

3. TECHNICAL AND BEHAVIORAL ANALYSES

Once the preferred asset classes, markets, sectors and individual investments are identified through the preceding analytical frameworks, the timing of safe entry and exit points is determined using technical and behavioral analysis through a proprietary methodology.

4. AGILE RISK MANAGEMENT

The world and the financial markets are a constantly moving space and are similar to meteorology where minor or unexpected events in one part of the world can have systemic consequences.

The ability to revert to cash in a cost-effective manner and without any psychological dogmatism about analytical conclusions is key to preventing downdrafts and delivering constant performances.