GBP

Automated Trading Strategies in GBP

Automated Trading Strategies in GBP

GBP Robo Adviser

Automated Investment Strategies in GBP with The Money Pouch Robo Adviser

All investment portfolios are automatically invested and rebalanced frequently in GBP.

All investment portfolios are also optimised to reduce risk. Please note that results below do not include fees and are backtested.

We have three different types of strategies based on a client's risk profile. Once you answer a short risk questionnaire, your retirement accounts will be automatically invested on your behalf.

 

Robo Adviser - Estimated Investment Returns in GBP

 

The Conservative Strategy = 8% returns per year

The Balanced Strategy = 12% returns per year

The Adventurous Strategy = 20% returns per year

 

Returns above are an approximation based on backtesting; they are slightly lower than investing in USD directly due to the hedging risk, but very useful if you are resident in a country which uses GBP or has a currency which closely tracks GBP or you are investing for shorter periods of time and investing with GBP.

The performance data shown represent past performance, which is not a guarantee of future results and does not include transaction fees. Investment returns and principal value will fluctuate, so investors' shares, when sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data cited.

 


 

At first, we looked at automated trading systems using GBP ETFs which were traded in the UK on the London Stock Exchange (LSE). However, there were some issues. Most GBP ETFs in the UK have had a much shorter shelf-life than in the USA which meant there was not enough data available for thorough testing. We could have used some of the newer ETFs and leveraged ETFs in GBP in the UK, but with so little data to test, it was unreliable as any form of predictor towards future returns. There would have been too much guesswork involved, so we weren't comfortable with the risk levels. We also tested data from some of the older GBP ETFs in the UK, but the returns were not great. In fact, returns were single digits in the conservative, balanced and adventurous strategy. In the end, it made more sense to use the USD ETF trading system which invests in the largest companies in the world such as Google, Amazon and Apple rather than invest in mainly UK based companies or using ETFs in GBP which often had higher expenses than their US counterparts.

The US dollar actually makes up more than 64% of the global central bank's foreign exchange reserves. In the foreign exchange market, the dollar rules. More than 85% of forex trading involves the US dollar. Furthermore, 39%of the world's debt is issued in US dollars.

You can read more here about why the US dollar is the world's reserve currency.

So, instead of creating strategies in ETFs based in GBP listed on the LSE with limited data and lower returns, we are using a GBP hedged version of our USD ETF strategies. We believe this will give clients a better returns at a lower risk with better predictors of outcome.

 


 

GBP Hedging Risk

We compensate the currency risk with E-micro futures. One future has a value of 6,250 GBP, so that is why the minimum account size is 10,000 GBP. This is the minimum account size for the hedging to work. The futures need to be rolled over every 3 months. This is why we recommend accounts to be held for 5 years or more so that the hedging can work and the market can also ride out any business cycles

Also, if you invest in amounts which are not a multiple of 6,250 GBP, some of the GBP will remain a currency risk, as the futures contracts cannot be split into smaller parts, i.e. if the trade volume is 20,000 GBP, and three GBP futures contracts are traded at 18,750 GBP, the remaining 1,250 GBP will be exposed to some currency risk. Just something to be aware of.

You can see the E-micro futures contracts for GBP/USD here. Click here to read more about hedging risk

We have left an example of the ETFs using GBP below for prosperity. We shan't be using them due to lower returns. We will be using the USD ETF strategies hedged to GBP as described above for superior returns and arguably, better risk management.


 

N.B. Please ignore this section below. This is an example of a portfolio using UK ETFs in GBP rather than using the GBP hedged version of the USD strategy, which is the preferred strategy that we will be using.

 

Please see an example of the roboadviser investment returns below if you invested in UK ETFs based in GBP. The CAGR shows the Compound Annual Growth Return. This is how much your portfolio will grow each year over the time period. The time periods below vary depending on the ETFs used as many were launched at different times. However, most portfolios below are tested over the most recent period of around five years.

The final balance shows how much a $10,000 portfolio may be expected to grow over the time period, in this case, approximately five years. CAGR shows average annual returns per year. Please note that these portfolios may have long "down" periods and may be down for months as well as in any calendar year. This is expected.

Conservative strategy - expected annualised return is 6%. This is the least risky strategy and you can sleep at night knowing your accounts will not fluctuate wildly. Holdings include some of the largest multi-nationals, gold and UK government bonds (gilts).

Balanced strategy - expected annualised return is 6%. This is a balanced stock/bond portfolio mix that includes some mid-sized companies and property.

Adventurous strategy - expected annualised return is 6%. When stocks fall, this strategy will likely suffer the most, but when stocks rise, your portfolio will likely outperform. This portfolio includes technology, biotech and international stocks.

Please note that going forward, we expect the adventurous strategy to outperform the balanced and conservative strategies.

Results going forward will be different, but the strategies all take risk/reward in mind and the idea is to preserve capital whilst making gains. Results below do not include transaction fees. There are no set up fees or exit fees. 

 

Robo Investing Returns in GBP

Roboadviser Model Initial Investment Final Balance Test Period CAGR Winning Trades Average Profit Maximum Downtime Sharpe Ratio
Conservative £10,000 £13,491 03/01/2012 - 01/03/2017 6% 63.3% £677 per year, £56 per month 85 weeks from Apr 2013 0.83%
Balanced £10,000 £13,674 03/01/2012 - 01/03/2017 6% 67.6%

£712 per year, £59 per month

158 weeks from Jan 2012 0.80%
Adventurous £10,000 £12,630 02/01/2013 - 01/03/2017  6% 74.8% £632 per year, £53 per month 84 weeks from Apr 2013 0.81%

Conservative Portfolio (The Ivy League Portfolio) in GBP

ISF iShares Core FTSE 100 UCITS ETF GBP (Dist)  

IGLT iShares Core UK Gilts UCITS ETF GBP (Dist)

XBUI  DBX Iboxx UK Gilt Inflation Linked ETF GBP 

PHGP ETFS Physical Gold ETF GBP

IGWD  iShares MSCI World GBP Hedged UCITS ETF (Acc)


Robo Adviser Conservative Portfolio Top Holdings

UK government gilts, physical gold, inflation linked gilts, HSBC, British American Tobacco, Royal Dutch Shell, BP, GlaxoSmithKline, AstroZeneca, Diageo, Vodaphone, Unilever, Apple, Microsoft, Amazon, Exxon Mobil, Johnson & Johnson, JPMorgan Chase & Co, Facebook, Wells Fargo, General Electric, AT&T      

The IVY league portfolio in GBP is loosely based on David Swensen's management of Yale University's endowment fund where he's generated above average returns during the past couple of decades. The IVY League portfolio is not optimised to maximise the risk ratio which hampers returns as risk is alread fairly low.

Robo Adviser Returns & Performance Statistics in GBP 

Roboadviser Model Initial Investment Final Balance Test Period CAGR Winning Trades Average Profit Maximum Downtime Sharpe Ratio
 Conservative   £10,000  £13,491  03/01/2012 -  01/03/2017  6%  63.3% £677 per year, £56 per month  85 weeks from  Apr 2013  0.83%

Please note there will be down months as well as up months, the statistics above show the aveage profit over the time period.


Balanced Portfolio (Low Volatility Portfolio)

ISF iShares Core FTSE 100 UCITS ETF GBP (Dist)  

IGLT iShares Core UK Gilts UCITS ETF GBP (Dist)

INXG iShares £ Index-Linked Gilts UCITS ETF GBP 

IGWD iShares MSCI World GBP Hedged UCITS ETF (Acc) 

MIDD  iShares FTSE 250 UCITS ETF GBP (Dist) 

IEEM iShares MSCI Emerging Markets UCITS ETF GBP (Dist) 

MVUS iShares Edge S&P 500 Minimum Volatility UCITS ETF USD (Acc) (GBP) 

CUKS iShares MSCI UK Small Cap UCITS ETF GBP (Acc) 

IUKP iShares UK Property UCITS ETF GBP (Dist) 


Robo Adviser Balanced Portfolio Top Holdings

UK gilts, index linked gilts, British Land, Land Securities Group, HSBC, Vodaphone, BP, Apple, Amazon, Microsoft, Samsung, Tencent, Alibaba, China Construction, China Mobile, Baidu, Taiwan Semiconductor Manufacturing,  Infoma, Rentokil, Microfocus International, Melrose Industries, Rightmove, United Health Group, ADP, Procter & Gamble, Waste Management, Stryker and Accenture. 

The low volatility portfolio uses a mix of low volatility stocks (stable stocks which don't fluctuate much) in the small cap and large cap markets, paired with a leveraged treasury ETF for safety. This helps target much higher performance and then is optimised for risk for a high sharpe ratio of 0.93.

Robo Adviser Returns & Performance Statistics in GBP 

Roboadviser Model Initial Investment Final Balance Test Period CAGR Winning Trades Average Profit Maximum Downtime Sharpe Ratio
Balanced £10,000 £13,674 03/01/2012 - 01/03/2017 6% 67.6% £712 per year, £59 per month 158 weeks from Jan 2012 0.80%

Please note there will be down months as well as up months, the statistics above show the aveage profit over the time period.


Adventurous Portfolio in GBP

IGLT iShares Core UK Gilts UCITS ETF GBP (Dist)

IGWD iShares MSCI World GBP Hedged UCITS ETF (Acc) 

MIDD  iShares FTSE 250 UCITS ETF GBP (Dist) 

IJPH iShares MSCI Japan GBP Hedged UCITS ETF (Acc) 

HLTG Lyxor MSCI World Health Care UCITS ETF (GBP)

VUSA Vanguard S&P 500 UCITS ETF (GBP) | VUSA

XLKQ Source Technology S&P US Select Sector UCITS ETF (GBP)

SBIO Source NASDAQ Biotech UCITS ETF (USD) | SBIO

CUKS iShares MSCI UK Small Cap UCITS ETF GBP (Acc) 


Robo Adviser Adventurous Portfolio Top Holdings

UK gilts, Berkeshire Hathaway, Amazon, Exxon, Microsoft, Apple, Facebook, GE, AT&T, Toyota, Sony, Softbank, Mitsubishi, Honda, Mizuho, Daimler, BASF, Allianz, Deutsche Telekom, Exelixis Inc, Ionis Pharmaceuticals, IONS, Taro Pharmaceutical Industries, ACADIA Pharmaceuticals, Infoma, Rentokil, Microfocus International, Melrose Industries andRightmove.

The adventurous portfolio is based on an ageing, growing world population as well as the new technology stocks. The portfolio is leveraged to increase returns, whilst optimised to reduce risk. 

The portfolio holds many of the largest blue chip companies in the USA, the largest tech companies such as Amazon, Apple, Facebook and Google, as well as the biggest pharmaceutical companies on the planet.

Robo Adviser Returns & Performance Statistics in GBP

Roboadviser Model Initial Investment Final Balance Test Period CAGR Winning Trades Average Profit Maximum Downtime Sharpe Ratio
Adventurous £10,000 £12,630 02/01/2013 - 01/03/2017  6%  74.8%  £632 per year, £53 per month  84 weeks from Apr 2013  0.81%

Please note there will be down months as well as up months, the statistics above show the aveage profit over the time period.


Are the Strategies Leveraged?

We make use of both leveraged ETFs (max 3x) and a "reg T" portfolio margin account. We only risk 40% of capital at any time in an account which is leveraged at 4:1. In other words, your account will be leveraged at 1.6 times your initial deposit. We feel this is one of the least risky ways to trade your account. If you have a low risk tolerance and worried that your account will fall by more than 20% in any given one year period, we highly recommend investing in our conservative strategy.    


Glossary (Terminology Explained)

The Compound Annual Growth Rate (CAGR) is a useful measure of growth over multiple time periods. It can be thought of as the growth rate that gets you from the initial investment value to the ending investment value if you assume that the investment has been compounding over the time period

The Standard Deviation (Std.Dev.) is a number used to tell how measurements for a group are spread out from the average (mean), or expected value. A low standard deviation means that most of the numbers are very close to the average. A high standard deviation means that the numbers are spread out. Max drawdown is an indicator of the risk of a portfolio chosen based on a certain strategy. It measures the largest single drop from peak to bottom in the value of a portfolio

The Sharpe Ratio is a measure for calculating risk-adjusted return, and this ratiohas become the industry standard for such calculations. It was developed by Nobel laureate William F. Sharpe. Measures above 1 are considered less risky

The Sortino ratio is a useful way for investors, analysts and portfolio managers to evaluate an investment's return for a given level of bad risk. Since this ratio uses the downside deviation as its risk measure, it addresses the problem of using total risk, or standard deviation, as upside volatility is beneficial to investors. Just like the Sharpe ratio, a higher Sortino ratio is better. When looking at two similar investments, a rational investor would prefer the one with the higher Sortino ratio because it means that the investment is earning more return per unit of bad risk that it takes on


Disclaimer/Performance Guide

  • Past performance is not a guarantee of future returns and data and other errors may exist. See Disclaimer and Terms of Use
  • The year range is automatically adjusted based on the selected year range and available return data for the specified assets
  • The annual results for 2016 are based on full calendar months from January to August
  • Mean variance optimization is based on the monthly return statistics of the selected assets, and the portfolio return statistics above use the same methodology
  • See methodology section of the FAQ for more information on mean variance optimization and its limitations
  • Expected annual return is based on annualized monthly returns
  • CAGR = Compound Annual Growth Rate
  • StdDev = Standard Deviation based on annualized standard deviation of monthly arithmetic returns (population standard deviation)
  • Sharpe and Sortino ratios are calculated and annualized from monthly excess returns over the risk-free rate (1month T-bills)
  • Drawdowns are calculated based on monthly returns.
  • The backtested results include frequent rebalancing of portfolio assets to match the specified allocation
  • The results use total return and assume that all dividends and distributions are reinvested. Taxes and transaction fees are not included.