ON OUR RADAR: SWOT PORTFOLIO MATRIX
Whatâs obvious, is obviously wrong.
Any investment must go through a rigorous analysis to determine unsystematic risk before committing to investment. To illustrate this, we drew upon the reliability of  Macroaxis Personalize Wealth Optimization portfolio services for correlative inputs to build our risk aversion SWOT[1] model. Macroaxis uses Modern Portfolio Theory (MPT) and the Markowitz Efficient Frontier Set; integrating traditional indicators based on statistical, fundamental and technical parameters.  Â
To see if SWOT can overcome its limitations and offer more scope to the significance of portfolio risk against performance analysis, we benchmarked an already existing portfolio, publicly traded on the Motif Investing brokerage internet platform.
Motif Investingâs Chinese Solar motif, their most popular thematic investment has a purported 142% yearly return on investment since itâs inception in 2012. For more details click on this link: Motif Investing - Chinese Solar.Â
Motif Investing promotes, âTrade Ideas, Not Stocksâ.  This approach tends to lead investors to a particular quasi-logical path, based on predetermined cognitive notions and beliefs when compared to the impartial complexity of portfolio asset allocation and proactive financial management (rebalancing asset allocation).
Chinese Solar is comprised of the following securities: CSIQ, JKS, TSL, SOL, HSOL, JASO, YGE, DQ.[2]Â These are ADRs that fit into a âgrowthâ strategy or more commonly known as the pure play factor [3] within the Motif Universe. Â
Valuation is based on Motifâs proprietary weighted index that claims to ââŚ[help] investors gain a more pure exposure to the underlying investment theme.â  Though it is stated that only Chinese solar assets were selected, CSIQ (Canadian Solar, Inc.) clearly is not based in China, thus it is the âanomalyâ factor in this portfolio.
Motif Investing uses a generic construction process for three investment strategy models that incorporates - fundamentally - the same conceptual inputs as Modern Hypothesis Theory; with a few tweaks of their own, such the âWeighted Motif Universeâ and/or the proprietary Motif Optimization Engine. Typically, the Markowitz Efficient Frontier is comparable.
Certainly, âideasâ equates to âassumptionsâ - the starting point for any investment trade - yet there is more involved in understanding the weighted percentages that each asset in a basket of securities carries; ultimately avoiding A âzero sum gameâ outcome.Â
[1] Strength, Weaknesses, Opportunities and Threats (SWOT): The traditional matrix application in marketing is equally essential in scrutinizing portfolio investments. As defined by Investopedia, SWOT clarifies portfolio valuation - risk against performance - as the impartial judge.Â
[2] This is not the original motif. It has been rebalanced since its inception on 1/1/2012.
[3] Not to be confused with the âPure-playâ semiconductor foundry.
Lastly, we have four questions to answer for validation of Motif Investingâs claim of a 142% yearly return on investment for the Chinese Solar motif:
Does Chinese Solar truly have a 142% yearly return?Â
Is Chinese Solar pure play strategy profitable?
Is the âWeighted Motif Universeâ accurate?
Is Motif Investingâs model robust?[1]
Our SWOT methodology could be argued as purely âsubjectiveâ however, collectively, the inputs are homogenous , so our deductive research and resulting empirical data is baseline to the norm in professional portfolio management.
[1] We define ârobustâ as âthe modelâs ability to effectively perform - minimizing negation of profits while market anomalies and individual asset variables are altered in adverse market performance conditions?â
MACROAXIS SWOT MODULE INPUTS
Alpha, Jensen Alpha, Risk Adjusted Performance, Treynor Ratio, Sortino Ratio, Efficiency (Sharpe Ratio)
Beta, Expected Shortfall, Market Risk Adjusted Performance, Value At Risk, Skewness, Kurtosis, Market Performance
Expected Return, Information Ratio, Potential Upside, Efficiency, Profit Margin
Risk (Volatility), After Hype Volatility, S&P Volatility Correlation, Maximum Drawdown, Downside Variance
Chinese Solar stocks pay no dividends. They are considered to be âgrowth stocksâ rather than âvalue stocksâ which are less risky. Benchmarked to the S&P 500, Chinese Solar is 3.85 times more volatile.
1 YEAR MARKET EFFICIENCY - TECHNICAL ANALYSIS
This graph shows Chinese Solar (green shade) out performing the market (gray shade) year to date. The table below confirms this charts analysis.
 (1. TABLE INSERT - ONE YEAR)
Chinese Solar depicts a stellar performance given the Potential Upside compared to Value At Risk (VaR). We simulated investing in Chinese Solar since its inception on January 1, 2012, replicating the same asset allocation percentages.  To date, our total investment payoff would have been $550.89 or 134.84% based on an approximate $1000 cost basis. We took a drawdown this week at -$48.49 or -4.81%. Â
Extrapolating the portfolioâs performance factors since inception, Chinese Solar (considering the current assets were constant without rebalancing) earnings were approximately $19.67 per month , not including inflation and the risk-free rate.
     3 MONTHS MARKET EFFICIENCY - TECHNICAL ANALYSIS
Now look what happened in the last three months to Chinese Solar.  Over a 90-day period Chinese Solar suffered a -3.81%. It clearly illustrates the volatility of a âpure playâ strategy investment and how easily profits can be negated.Â
If you look at the peak (green shaded area), reaching over +20% profitability in March, going into April the mean reversion mirrors (red shaded area) the profitability to over -20% while the S&P 500Â (gray shaded area) remained stable in comparison. Â
(2.INSERT THREE MONTH MARKET EFFICIENCY MATRIX TABLE)
In a 90-day time horizon, the Potential Upside is collectively out-weighed by the Value At Risk. For one year, the portfolio has a diversification score of <1. Â
Both scenarios are high risk, and only the fact there was a bullish market in 2013 kept Chinese Solar afloat.
(3. INSERT SWOT - CHINESE SOLAR HERE)
Comparatively, the past year performance was more favorable then going forward with a 90-day time horizon. Noteworthy is Market Performance, dropping from 7 to 1 and the Kurtosis being negative (on the right side of the bell curve).Â
Note: The Standard Deviation equation in the far right column would be incorporated into a calibrated quantitative solution set for further aggregated statistical analysis.
OPTIMIZATION Â RE-BALANCING
(4. INSERT CURRENT PORTFOLIO TO OPTIMIZED PORTFOLIO TABLE HERE)
(5. INSERT "OPTIMIZED ALLOCATION  RE-BALANCING TABLE HERE)
(6. INSERT PERFORMANCE COMPARISON TABLE HERE - MOTIF 1 YEAR AND 1 MONTH PERCENTAGES)
Comparatively, our calculations are compared to Motif Investingâs weighted index percentages for 1 Year and 1 Month, respectively.  This validates the optimization of the Chinese Solar portfolioâs asset re-balance.
JASO, DQ, JKS, and HSOL (showing a downturn for the past month) will collectively bring greater Expected Returns compared to the S&P 500, as shown below in this graph.
Proposed Portfolio Optimization
Chinese Solar Expected Returns after being optimized by Macroaxisâ recommendation is shown below.
So returning to our questions, we can surmise that:
1) Chinese Solarâs yearly return is extremely risky, given that Chinese Solarâs portfolio is built upon growth stocks, which present more risk over return when there is uncertainty with market performance. As we demonstrated, profits can be negated very quickly if you do not have a well-diversified portfolio.
2) The âpure playâ strategy is not optimal and can be very misleading in a "Trade Ideas, Not Stocks" strategy.  Motif Investing did not âoptimizeâ Chinese Solar, which we demonstrated would have had risk aversion  impact on the selection and asset allocation of the portfolio using traditional statistical and technical indicators.  Introducing SWOT augmented our deduction; a viable tool when testing oneâs assumptions for portfolio wealth building.
3) We question the accuracy of Motif Investingâs âWeighted Motif Universeâ and feel, moreover, that it is skewed and misleading. Motif Investing does not present more analytical indicators that would provide greater insight and impartial judgment in building robust portfolios - moving away from the âTrade Ideas, Not Stocksâ adage as a higher potential for losses.
4) Motif Investing, after scrutinizing Chinese Solar through our SWOT analysis using Macroaxisâ analytics, proves that there is an issue with the lack of asset diversification when investing in thematic based portfolios.Â
You may compare both the current Chinese Solar motif and our Chinese Solar optimized motif on the internet.
OPTIMIZED CHINESE SOLAR MOTIF
GRTS Portfolio Analysis authored this article. It is for educational purposes only. The author and/or assigns are not making any recommendations for trading the listed assets in part or whole, and reserve the right of copyright ownership for this content. Any reproduction in part or whole must be obtained prior to third party publication. GRTS Portfolio Analysis received permission from Macroaxis to publish their graphs in this article.
