The purpose of this document is to explain to current and future Easyvest’s clients how their money is invested.
An investment strategy is the set of beliefs and principles that an investor believes she will use to invest money.
Easyvest's investment strategy is based on five fundamental principles that we apply to each of our clients' investment portfolios.
When it comes to investing in the stock market, we consider it extremely difficult to beat the average market return over the long term. We therefore do not waste resources trying to find the 'right' stock, as we believe this is a futile quest. We prefer to buy diversified stocks and bonds funds that follow the trend of the stock market as a whole.
We are not all equal when it comes to the risk of loss of value of an investment portfolio. We expose you to a level of risk that matches your tolerance for loss, your investment horizon and your financial goals. We do this by cleverly mixing the proportions of riskier assets, such as equities, and less risky assets, such as bonds, to achieve a balance between potential loss and expected return that suits you.
Higher fees and taxes by definition lead to lower performance. Our portfolios invest in low-cost tracker funds to generate a better return.
We believe that it is not possible to predict the 'right' time to enter or exit the market. We advocate investing for the long term according to your risk profile, and occasionally rebalancing your portfolio to keep it at the right risk level for each stage of your life.
The earlier you start investing, the greater your wealth will be in the long run thanks to the snowball effect of accumulated interest. You don't have to wait until you are rich to invest. That's why Easyvest is open to all levels of wealth, whether you have a few thousand or several million euros to invest. Our approach to investment is the same whatever your level of wealth.
The portfolio management by Easyvest is performed exclusively through trackers, i.e. investment funds that have the particularity of tracking the performance of a stock market index by investing in the basket of shares and/or bonds that make up the index.
When such a fund can be bought and sold on an exchange, rather than at a bank counter, it is commonly referred to as an "exchange traded fund" or ETF.
Note that not all ETFs track an index, although popular jargon often makes this confusion. Indeed, ETF only means that the fund is traded on the stock exchange, not that it tracks an index.
Hundreds, if not thousands, of trackers are available on the financial markets. Easyvest uses a number of criteria to select which trackers to invest in.
First of all, the tracker must follow an index that fits with the Easyvest’s investment strategy. For example, an index that represents all listed equities in the world or all government debt in the Eurozone.
Secondly, the tracker should be issued in euros, as this is the reference currency for our clients. Ideally, the tracker should be tradable on a stock exchange where transaction costs are not prohibitive, typically on Euronext. The tax structure of the fund (e.g. capitalization vs. distribution) will also be taken into account, in order to reduce the total cost for the client.
Finally, Easyvest selects funds from reputable issuers, with several market markers, low fees and low tracking error. The tracker must be of a respectable size, ideally above one hundred million euros, with a performance history ideally above three years and sufficient historical liquidity with an absolute spread between the purchase and sale price ideally below 0,5%.
Risk, when it comes to investing, is a concept that can have many different meanings. As a client of Easyvest, when we talk about risk, we are talking about the risk of a decrease in the value of your investment portfolio.
This risk of a decrease in value can be expressed mathematically by the statistical notion of "value at risk" or VaR. For example, a VaR of 15% indicates that we estimate that over a period of one year the value of a portfolio will not fall below 15% of its initial value in 98% of cases. Expressed differently, we estimate that there is only a 2% probability that the decline will be more than 15%.
Your risk profile is the level of value at risk (i.e. the VaR defined in the previous question) that you are willing to bear. Easyvest offers ten risk levels with VaR ranging from 3% to 30% with a step of 3%.
Most investment firms refer to "defensive", "medium" or "aggressive" risk portfolios. Each "qualifier" corresponds to an acceptable range of equity investment. For example, an "aggressive" portfolio may contain between 70% and 90% equities.
At Easyvest we do not like this approach for two reasons. Firstly, we find that these qualifiers are vague, unclear and do not correspond to any scientific or mathematical notion. Secondly, the concept of an equity-interval to represent risk does not mean much unless it is detailed which equities are precisely used and in what level of allocation and diversification. We use a different approach.
A model portfolio at Easyvest is an investment portfolio composed of trackers in such proportions that the "value at risk" of the model portfolio is adequate in relation to the investment objective and the personal situation of the investor.
Easyvest defines "value at risk" or "VaR" as the maximum acceptable decrease in value of a portfolio over a year. VaR is calculated using a complex1 statistical formula but is relatively simple to interpret. For example, a portfolio with a VaR of 15% indicates that in the event of a significant decline in the stock market, there is little chance according to our calculations that the value of the portfolio will fall by more than 15% over one year.
When we say "little chance", our statistical model actually estimates that if the portfolio's value declines over a full year, there is a 98% chance that the decline will be less than 15% and only a 2% chance that the decline will be greater than 15%.
To date, Easyvest offers ten model portfolios for its portfolio management, corresponding to ten VaRs, whose characteristics are listed in the table below. For ease of communication with our clients, we have given a number from 1 to 10 to each model portfolio. Portfolio 1 is the least risky, portfolio 10 is the most risky:
(*) This is the allocation mix between a bond tracker and an equity tracker corresponding to the VaR as of 1erJanuary 2020. This allocation may be subject to change: at Easyvest it is the level of risk that is the constant in our management. The allocation results from the selected VaR level and vice versa.
Yes, when we initially build your portfolio, its composition is modelled on the model portfolio and risk profile that suits your investment objectives, risk appetite and financial knowledge at the date of the portfolio construction. These parameters may change over time and therefore so may your risk profile and model portfolio.