PP Capital Tactical Asset Allocation (PPC TAA) is an active investment strategy, with the purpose of protecting the portfolio in high volatility environments and still deliver strong returns in phases with low volatility. The strategy adjusts the allocation between different asset classes, depending on the underlying market risk. PPC TAA thereby serves as the risk adjusting element of the portfolio and is used in combination with PP Capital’s other funds, depending on the investor’s horizon and risk profile.
PPC TAA consists of a portfolio of index funds, ETFs. Tactical allocation means that the allocation is adjusted on an on-going basis depending on the economic environment and market dynamics. Thus, in a positive investment environment, characterized by increasing growth and positive price levels, we allocate towards equities. Opposite, in a more nervous investment environment, with decreasing growth and price levels, is allocation mainly towards bonds and alternatives, depending on the inflation level. PPC TAA thereby offers on-going opportunities to allocate to the asset class with the best conditions in the current investment environment.
Latest PPC TAA report (Danish)
Source: Fundmarket A/S
The objective of PPC TAA is to deliver stable returns over time. This is achieved through risk adjustments, based on the economic development, market dynamics and, the inflation level. Every month, we decide on whether to take “risk-on” or “risk-off”. It is, thereby, possible to actively adjust the risk and allocate to the most favorable asset classes, given the current investment environment.
PPC TAA is created with the ambition of delivering strong risk-adjusted and absolute returns, stabilizing, and building the fortune over time. Historically, the strategy has delivered an average return between 10 and 20 percent.
Our investment approach and risk management in PPC TAA imply that the portfolio avoids significant losses when markets drop. The latest example is from March 2020, where we delivered a return of 0.17% compared to -13.63% in the global stock index.
The key to stable and long-term returns is the active and tactical allocation, between different asset classes. This is where PPC TAA has an advantage. High volatility on financial markets can have significant impacts on a portfolio’s long-term return. It is therefore essential to minimize or avoid losses. Given the previous years’ high level of volatility, is it more important than ever to allocate actively and dynamically and exploit opportunities when they appear, just as well as protecting the fortune when markets turn.
Active allocation has proven its worth. Studies show, that active allocation is the most important factor for the portfolio return. We believe that the optimal portfolio strategy is created through a structured and dynamic allocation strategy, which also helps to avoid long-term downturns in the market. This is the core of PPC TAA, that increases the portion of bonds and alternative investments, and lowers the percentage of equities, in periods with volatility and uncertainty. This is how long-term and stable returns are created. The success criteria of the strategy is to identify shifts in both the economic environment and the market dynamic. In a “risk-on” environment, the strategy primarily allocates towards equities and in a “risk-off” environment is exposure towards government bonds, depending on the underlying risk.
Our active approach is based on an analysis of the economic environment. Several leading economic indicators help to identify changes in the economy before they happen. For instance, when economic trends turn and start increasing, this supports more risky assets. Overall, this gives us an idea of the underlying trend. The price development can be hit by self-accelerating effects until the development no longer supports expectations. At this point, the market dynamic and behavior of market players must be considered. These effects are one of the reasons that markets may show tendencies of irrationality. For instance in scenarios, where the development of the economy is not aligned with that of the equity market. Our active approach always takes into consideration the dynamic between the underlying price- and economic development and investors’ expectations.
By investing in TACTIC, you can expect:
PPC TAA primarily invests in Exchange-Traded-Funds (ETFs) as these are favorable compared to traditional investment funds. ETFs are cost-efficient, fully transparent, and provide good opportunities to diversify investments between asset classes, sectors, and countries.
The investment procedure, behind PPC TAA, include several quality measures in the selection of ETFs. First, all ETFs must be listed, and follow a liquidity index and benchmarks. This gives us the option to get cheap and exact exposure to both equities, bonds and alternative investments. Second, all ETFs are required to have large AUM, low management- and subscription fees and lastly, all ETFs must be UCITS approved. Following these requirements, we can construct a stable and cost-efficient portfolio.
PCC TAA can include both equities, bonds, and alternative investments. The strategy is concentrated and allocation towards both equities and bonds ranges between 0 and 100 percent. Alternative investments will constitute between 0-35 percent.
PPC TAA does not use a benchmark, as the goal of the strategy is to create absolute returns despite the general market development.
Palle Lund Hansen
"The investment process of PPC TAA aims at timing the level of risk given the current market conditions”
PPC TAA has a current and running admin and management cost of 0.75%. The total annual cost (ÅOP) is estimated at 1.05%. There is a potential performance fee, based on a “hard hurdle rate”, if return exceeds 8% per year, a performance fee of 25 percent of the excess return that year applies. Please see the prospectus below for further details.
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Information in this material has been developed by PP Capital Asset Management and can not be assumed to be investment analysis or recommendations for investments or offers. The material is for informational purpose only, and can be based on data simulations, certain assumptions, public available information, own data and calculations.
Any recommendations should not be assumed to be an offer to buy or sell the specific investment products. The information provided in this document regarding historical yields, simulated yields or forex exchange developments, must not be used as an indicator or guarantee for future yields or performance.
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