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ABOUT MYSELF
I hold a master’s degree from Oxford University in
statistics. I have worked in the global markets side at
various investment banks, covering the trading need
for asset managers, hedge funds and other sell-side
firms in the region. I have a true expertise and
passion in researching quantitative investing
strategies in equities, volatility and FX to deliver
robust outperformance.
CALVIN LAU
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GLOBAL SENMO EQUITY ALLOCATION
Global equity markets historically posted highly attractive return to investors.
However, major drawdowns and sell-offs can significantly harm investors’ wealth.
Equities in different geographies perform differently over time.
An effective methodology is essential to indicate the optimal market allocation: By evaluating the current sentiment and momentum of different geographies.
If we are currently experiencing a bullish wave, we need to judge whether it will last.
RATIONALE
2005 2006 2007 2008 2009 2010 2011 2012 2013
1 Nikkei 40%
Hang Seng 34%
Hang Seng 39%
Gold 5%
Emerging 66%
Gold 29%
Gold 10%
Nikkei23%
Nikkei57%
2 EuroStoxx21%
Emerging 29%
Emerging 32%
S&P500 -38%
Hang Seng52%
Emerging15%
S&P500 0%
Hang Seng23%
S&P50030%
3 Gold 18%
Gold 23%
Gold 30%
Nikkei-42%
Gold 24%
S&P500 13%
EuroStoxx -17%
Emerging 17%
EuroStoxx 18%
4 Hang Seng 5%
EuroStoxx 15%
EuroStoxx 7%
EuroStoxx -44%
S&P500 23%
Hang Seng 5%
Nikkei -17%
EuroStoxx 14%
Hang Seng 3%
5 S&P5003%
S&P500 14%
S&P500 4%
Hang Seng -48%
EuroStoxx 21%
Nikkei -3%
Hang Seng -20%
S&P500 13%
Emerging -6%
6 Emerging-56%
Nikkei 7%
Nikkei -11%
Emerging -83%
Nikkei19%
EuroStoxx -6%
Emerging -20%
Gold 7%
Gold -28%
Rank of global markets performance from 2005 to 2013: No eternal winner.
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GLOBAL SENMO EQUITY ALLOCATIONUNIVERSE
Market ETF / ETNs
US PowerShares QQQ Nasdaq 100 Trust ETF (QQQ)
UK WisdomTree UK Hedged ETF (DXPS)
Germany WisdomTree Germany Hedged ETF (DXGE)
Japan WisdomTree Japan Hedged ETF (DXJ)
Defensive Basket60% SPDR Utilities Select Sector ETF (XLU)
30% SPDR Gold Trust ETF (GLD)10% Barclays iPath VIX Short-term Futures ETN (VXX)*
* Weights as of rebalancing date.
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GLOBAL SENMO EQUITY ALLOCATIONMETHODOLOGY
The Global SENMO Equity Allocation is an equity quant strategy which invests in different
geographic markets by assessing the SENtiment and MOmentum of each market.
Local-market- specific models
Sunrise Sentiment Indices Quantify multi-asset stress in equities, FX
and rates
Price behavioural analysis algo Analysis behaviours such as price
distribution, outperformance, correlation “Let the data speak”
Risk-on Risk-off
Allocate in QQQDXGEDXPSDXJ
Allocate in the defensive
basket
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GLOBAL SENMO EQUITY ALLOCATIONWHY IS THE STRATEGY UNIQUE
Invest only in ETF / ETNs – Abundant liquidity
Systematic investing strategy. Trade decisions are 100% determined by algorithms by interpreting
market condition according to price behaviours.
The algorithms are flexible to accommodate different market landscape without the need of manual
adjustments. The algorithms fine-tune themselves according to the Sunrise Sentiment Indices.
Non-parametric models: Avoid the possible parameter-optimisation bias related to model-fitting
Non-traditional equity quant approach: Does not use traditional methods such as charting or multi-
factor models.
SUNRISE SENTIMENT INDICESMULTI ASSET BAROMETERS
The Sunrise Sentiment Indices are multi-asset indicators to gauge the sentiment of the capital
markets. The indices are calculated for the US, German, UK and Japanese markets.
In general, a reading beyond 3 or -3 means the market activity is irregular.
Jan/05
Aug/05
Mar/06
Nov/06
Jun/07
Jan/08
Sep/08
Apr/09
Nov/09Ju
l/10
Feb/1
1
Oct/11
May/12
Dec/12
Aug/13
Mar/14
Oct/14
Jun/15
-12
-8
-4
0
4
US Centric
Jan/05
Aug/05
Mar/06
Nov/06
Jun/07
Jan/08
Sep/08
Apr/09
Nov/09
Jul/1
0
Feb/1
1
Oct/11
May/12
Dec/12
Aug/13
Mar/14
Oct/14
Jun/1
5-30
-20
-10
0
10
German Centric
Jan/05
Aug/05
Mar/06
Nov/06
Jun/07
Jan/08
Sep/08
Apr/09
Nov/09Ju
l/10
Feb/1
1
Oct/11
May/12
Dec/12
Aug/13
Mar/14
Oct/14
Jun/1
5-12-10
-8-6-4-2024
UK Centric
Jan/05
Aug/05
Mar/06
Nov/06
Jun/07
Jan/08
Sep/08
Apr/09
Dec/09Ju
l/10
Feb/1
1
Oct/11
May/12
Dec/12
Aug/13
Mar/14
Oct/14
Jun/15
-15
-10
-50
510
15
Japanese Centric
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CASE STUDY ISUNRISE SENTIMENT INDEX IN 2008 CRISIS
Sep/07
Sep/07
Sep/07
Oct/07
Oct/07
Nov/07
Nov/07
Nov/07
Dec/07
Dec/07
Jan/08
Jan/08
Jan/08
Feb/0
8
Feb/0
8
Mar/08
Mar/08
Mar/08
Apr/08
Apr/08
Apr/08
May/08
May/08
Jun/08
Jun/08
Jun/08
Jul/0
8Ju
l/08
Aug/08
Aug/08
Aug/08
Sep/08
Sep/08
Oct/08
Oct/08
Oct/08
Nov/08
Nov/08
Dec/08
Dec/08
-13
-11
-9
-7
-5
-3
-1
1
3
US Centric
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Mortgage crisis since
late 2008
Bear Stearns sold to JPM
Lehman bankruptcy
Street-wide Bailouts
Irregular zone
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CASE STUDY IISUNRISE SENTIMENT INDICES VS IMPLIED VOLATILITY INDICES
An increase in Implied volatility index does not necessarily mean market fear (e.g. VNKY during
Abenomics in late 2012)
The Sunrise Sentiment Indices are better measures of market sentiment by scientifically assessing
multi-asset movement
Aug/12
Oct/12
Dec/12
Feb/13
Apr/13
Jun/1
3
Aug/13
8000 9000
10000 11000
12000 13000 14000 15000
16000 17000
10
15
20
25
30
35
40
45
50
Nikkei VNKY (RHS)
Aug/12Oct/12Dec/12Feb/13Apr/13 Jun/13Aug/13-2.00
0.00
2.00
4.00
6.00
8.00
10.00Sunrise Sentiment Index - Japan Centric
Implied vol increased with
equities
Irregular Zone
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GLOBAL SENMO EQUITY ALLOCATION
Below are the market allocations of the strategy over historical period.
Some important historical market events:
2008: US credit crunch
2009-2014: Post-crisis QEs and recovery
2012-2013: Abenomics
HISTORICAL ALLOCATION
Nov/05
May/06
Nov/06
May/07
Nov/07
May/08
Nov/08
May/09
Nov/09
May/10
Nov/10
May/11
Nov/11
May/12
Nov/12
May/13
Nov/13
May/14
Nov/14
May/15
Nov/15
May/16
0%10%20%30%40%50%60%70%80%90%
100%US Defensive Ger UK JP Cash
Monthly Geographical Weights
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Nov/05 Nov/06 Nov/07 Nov/08 Nov/09 Nov/10 Nov/11 Nov/12 Nov/13 Nov/14 Nov/150
100
200
300
400
500
600Strategy S&P500
GLOBAL SENMO EQUITY ALLOCATIONLIVE AND BACK-TEST PERFORMANCE
Live
Dividend is not reinvested. The strategy was back-tested until Jun 2014 and is live thereafter. Live refers to the stage when the back-testing has been completed and the strategy is under live calculation.
Nov/05 Nov/06 Nov/07 Nov/08 Nov/09 Nov/10 Nov/11 Nov/12 Nov/13 Nov/14 Nov/15-10%
-8%-6%-4%-2%0%2%4%6%8%
10%Monthly Return
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GLOBAL SENMO EQUITY ALLOCATIONLIVE AND BACK-TEST PERFORMANCE
Dividend is not reinvested. The strategy was back-tested until Jun 2014 and is live thereafter. Live refers to the stage when the back-testing has been completed and the strategy is under live calculation.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YEAR
2005 9.04% 5.38% 14.90%2006 3.75% 1.10% 2.33% 0.75% -6.91% -0.37% 4.36% -0.44% 1.28% 4.60% 1.42% 1.44% 13.57%2007 2.57% 1.10% 0.93% 3.99% 4.65% 0.07% -3.39% 4.30% 4.97% 4.28% -4.77% 2.27% 22.45%
2008 -3.17% 0.00% 0.00% 6.80% 2.56% -0.85% -4.38% 0.00% -9.17% 3.61% 8.84% 0.00% 2.99%2009 -6.36% 0.00% 0.00% 8.13% 4.00% 0.09% 6.32% 2.35% 4.08% -2.07% 3.80% 4.80% 27.17%
2010 -5.26% -0.95% 9.37% 1.94% -8.61% 1.45% 3.70% -2.83% 5.41% 6.08% 2.08% 4.00% 16.03%2011 1.62% 4.09% -0.12% 6.49% -1.26% -1.10% -0.68% -6.41% 0.51% 1.47% 0.05% 0.76% 5.00%
2012 7.66% 6.20% 2.48% -1.80% -8.71% 3.16% 0.94% 1.96% 1.41% 0.66% 2.19% 1.36% 17.93%
2013 6.51% 2.53% 3.29% 3.93% -1.24% -2.15% 5.20% -2.78% 6.01% 3.64% 3.37% 2.24% 34.51%
2014 -4.23% 3.05% -0.79% 2.03% -0.11% 2.96% 1.23% 3.07% 0.25% 0.49% 0.91% -1.63% 7.20%
2015 7.68% 1.76% -1.00% -2.71% 1.58% -3.65% 4.26% -7.11% 0.73% -1.32% 4.09% -3.30% 0.08%
2016 4.86% 4.00% 5.55% 0.78% 16.00%
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GLOBAL SENMO EQUITY ALLOCATIONLIVE CALCULATION ON MOTIF INVESTING SINCE 2016
https://www.motifinvesting.com/motifs/global-senmo-equity-allocation-lJf9ghkq#/overview
Dividend is not reinvested. The strategy was back-tested until Jun 2014 and is live thereafter. Live refers to the stage when the back-testing has been completed and the strategy is under live calculation.
YTD return: 18.7% (as of Sep 16, 2016) even after the stock routs in January and September.
