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Global macro expert Soso on risk modelling in action

Global macro expert Soso on risk modelling in action

Global macro specialist Lucio Soso likes to be ready for anything. The former Citywire + rated manager designed his Bellevue F (Lux) Global Macro fund to react quickly to whatever the markets could throw at it.

‘We try to work out several plausible outcomes in advance,’ Soso says from his Zurich office. ‘At each point in time we have a central-case scenario and then we focus on the possibility of things going slightly better or worse and try to simulate the performance.’

When it comes to structuring his portfolio, Soso says the emphasis is on embedded risk which is why when the fund was developed in 2007, it had volatility management at its heart.

‘After the correction, the feedback from clients at the tim was they were scared by the difference in monthly performance,’ he says.

‘They can cope with some volatility, what they don’t like is big jumps; so plus two, minus two can be handled but suddenly going to minus 10 or even plus 10, is too much.’

Soso therefore opted to spread risk throughout his fund, which currently has €20 million in assets. He can invest across equities, fixed income and commodities on a long and short basis, and can add leverage to positions where necessary.

One step ahead

Backed by his flexible modelling strategy, Soso is focused on shifting risk, rather than just weightings, and says this approach has helped turn the fund around over the past 12 months.

That is not to say his one-year track record isn’t impressive – he returned 6.2% while his average peer managed 2.48% – but mid-way through 2013, Soso was returning -1.41% against an average 0.2%.

So how did he end up outperforming from here? Soso says a pre-emptive strike shortly ahead of the Federal Reserve’s first murmuring of tapering paid off when it came to the end of the year.

‘After the Fed announcement there was a big sell-off in bonds and suddenly my models told me that bonds were very cheap,’ he says. ‘I had already fundamentally and structurally changed my allocation to government bonds prior to that based on my scenarios.

‘That has helped my performance quite a bit. I decided to change the neutral allocation of the fund to 75% bonds and 25% equities.’

Topping his buy-list was Italian government debt but, once again driven by his models. Soso then turned his attention to German bunds and US treasuries in September and leveraged up exposure.

‘That is quite counter-intuitive because you normally think, at this end of the cycle, bond yields tend to go up and so it was a highly contrarian trade.

‘I think once you have the numbers in front of you, you have to go for it and in December I increased to over 100%. By the month-end, I had 100-120% in German and US bonds.’

For Soso it’s all about having the stats at his finger tips: ‘I have my models and I have my numbers in front of me, if I don’t have hard figures I find it difficult to take positions with conviction.

This article originally appeared in the March issue of Citywire Global magazine

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