iBasket X-Ray
Precision Risk Control
Asset Allocation

The bubble chart below shows the returns over a one-year period against the volatility over the same period for the different ETFs in the iBasket.
Source Bloomberg Commodity UCITS ETF ETFS Physical Gold iShares Emerging Markets Local Government Bond UCITS ETF iShares Euro Inflation Linked Government Bond UCITS ETF iShares £ Corporate Bond 1-5yr UCITS ETF Lyxor FTSE Actuaries UK Gilts 0-5Y Amundi ETF MSCI Eastern Europe ex Russia iShares Core MSCI Emerging Markets IMI UCITS ETF iShares Automation & Robotics UCITS ETF USD (Acc) iShares Healthcare Innovation UCITS ETF USD (Acc) db x-trackers JPX-Nikkei 400 GDP hedged UCITS ETF iShares EURO STOXX Mid UCITS ETF db x-trackers MSCI EMU Index UCITS ETF (DR) 1D SPDR Russell 2000 U.S. Small Cap UCITS ETF Vanguard S&P 500 Cash - Sterling
Risk Indicators

A heightened risk in the markets is often a sign of a subsequent downturn in the economy. If the risk in the markets is high, one tends to reduce the exposure to risky assets in the portfolio and increase the exposure to safer assets like government and inflation-linked bonds. The higher the risk level, the higher the scorecard for any of the safer, low risk ETFs and vice-versa for the more risky ETFs.

A level of around 20% for the VIX and the VSTOXX can be seen as a neutral risk level. Values lower than that are considered as low risk. During the global financial crisis the values of the VIX and the VSTOXX went up to 81% and 88%, respectively. While the level of the VIX and the VSTOXX gives a good indication of the current riskiness in the markets, one also looks at the current trend in these values to determine whether the riskiness is increasing or decreasing.
TickerTickerTERAsset ClassSub-Asset ClassRegion
Cash - SterlingCash_GBP0CashGBP CashEurope
Source Bloomberg Commodity UCITS ETFCMOD19CommodityBroad MarketGlobal
ETFS Physical GoldPHAU39CommodityPrecious MetalsGlobal
db x-trackers MSCI EMU Index UCITS ETF (DR) 1DXD5E15EquityBlend - Large CapEurope
Vanguard S&P 500VUSA7EquityCountryNorth America
iShares Core MSCI Emerging Markets IMI UCITS ETFEIMI25EquityEmerging Market EquityEM-Global
db x-trackers JPX-Nikkei 400 GDP hedged UCITS ETFXDNG30EquityLarge Cap EquityJapan
iShares EURO STOXX Mid UCITS ETFDJMC40EquityRegionEurope
Amundi ETF MSCI Eastern Europe ex RussiaCE920EquityRegion Fund-Eastern EuropeanEastern European
iShares Healthcare Innovation UCITS ETF USD (Acc)HEAL40EquitySectorGlobal
iShares Automation & Robotics UCITS ETF USD (Acc)RBOT40EquitySectorGlobal
SPDR Russell 2000 U.S. Small Cap UCITS ETFR2SC30EquitySmall CapUnited States
iShares Emerging Markets Local Government Bond UCITS ETFSEML50Fixed IncomeGovernment BondsEM-Global
Lyxor FTSE Actuaries UK Gilts 0-5YGIL57Fixed IncomeGovernment BondsEurope
iShares Euro Inflation Linked Government Bond UCITS ETFIBCI25Fixed IncomeInflation BondsEurope
iShares £ Corporate Bond 1-5yr UCITS ETFIS1520Fixed IncomeInvestment Grade BondsEurope
Macro-Economic Indicators
We believe that an evidence based approach to portfolio construction is the best framework by which to seek enhanced returns under a backdrop of ever changing economic conditions. One technique we use is to screen the potential ETFs in a portfolio according to the prevailing macro-economic conditions and other leading market indicators. Of particular interest are the OECD and PMI data published monrthly, along with the VIX and VSTOXX.

The Benefits of Double Diversification
The double diversication properties of a portfolio of ETFs is a key aspect of our portfolio construction process. An ETF itself is diversified. For example the FTSE 100 has no idiosyncratic risk - if one company were to go down by 50%, the FTSE 100 would, all else being constant, on average only be down by 0.5%. A portfolio of ETFs is doubly diversified as we take into account the correlation properties of the different ETFs. Assets that are low or negatively correlated with each other allow one to build portfolios with lower risk for the same level of returns - or larger returns for the same level of risk.
Asset x Asset - Correlation over full period VUSAR2SCXD5EDJMCXDNGHEALRBOTEIMICE9GIL5IS15IBCISEMLPHAUCMOD
Vanguard S&P 500VUSA10.790.680.610.330.630.730.70.480.270.410.360.580.260.29
SPDR Russell 2000 U.S. Small Cap UCITS ETFR2SC0.7910.520.470.380.590.650.440.180.150.320.070.290.040.22
db x-trackers MSCI EMU Index UCITS ETF (DR) 1DXD5E0.680.5210.960.320.530.680.620.620.110.520.340.530.210.13
iShares EURO STOXX Mid UCITS ETFDJMC0.610.470.9610.240.510.660.60.660.120.540.410.510.260.17
db x-trackers JPX-Nikkei 400 GDP hedged UCITS ETFXDNG0.330.380.320.2410.250.40.130-0.280.04-0.39-0.2-0.49-0.24
iShares Healthcare Innovation UCITS ETF USD (Acc)HEAL0.630.590.530.510.2510.640.410.370.260.450.320.430.20.15
iShares Automation & Robotics UCITS ETF USD (Acc)RBOT0.730.650.680.660.40.6410.720.50.090.360.320.510.260.26
iShares Core MSCI Emerging Markets IMI UCITS ETFEIMI0.70.440.620.60.130.410.7210.690.180.330.540.820.420.4
Amundi ETF MSCI Eastern Europe ex RussiaCE90.480.180.620.6600.370.50.6910.160.420.590.630.330.2
Lyxor FTSE Actuaries UK Gilts 0-5YGIL50.270.150.110.12-0.280.260.090.180.1610.560.520.40.350.11
iShares £ Corporate Bond 1-5yr UCITS ETFIS150.410.320.520.540.040.450.360.330.420.5610.390.350.12-0.04
iShares Euro Inflation Linked Government Bond UCITS ETFIBCI0.360.070.340.41-0.390.320.320.540.590.520.3910.780.580.37
iShares Emerging Markets Local Government Bond UCITS ETFSEML0.580.290.530.51-0.20.430.510.820.630.40.350.7810.610.44
ETFS Physical GoldPHAU0.260.040.210.26-0.490.20.260.420.330.350.120.580.6110.57
Source Bloomberg Commodity UCITS ETFCMOD0.290.220.130.17-0.240.150.260.40.20.11-0.040.370.440.571