Mon, Apr 23, 2018
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Stonehenge Capital’s Forward Curve Realignment (FCR)hedge fund debuts strong returns one month after launch

Monday, October 24, 2011
Opalesque Industry Update - Florida-based asset management firm, Stonehenge Capital Management’s new direction neutral strategy Forward Curve Realignment (FCR) hedge fund debuted with a strong return one month after it was launched on September 1 this year.

FCR returned 0.3 percent in its first month of trading during one of the most turbulent market conditions, Stonehenge Capital Manager Steven Michael said.

According to Michael, FCR seeks to capitalize on the reversion to equilibrium of the forward curve following the distortions brought about by the rolling of contracts of established positions, primarily by long-index investors and speculators.

FCR will focus on investing in a variety of sectors (energies, grains, metals, softs and livestock) and markets in order to take advantage of reversions to equilibrium of the forward curve following distortions brought about by large capital flows.

Michael commented, “According to the CFTC, as of July 29, 2011, there was in excess of $180 billion (notional) in net long index commodities positions across 21 markets. Also, we believe that there is more than $100 billion managed by CTAs, and an additional $100 billion in commodities Exchange Traded Funds. Much of this total investment is held in nearby or front-month contracts. As these contracts near their expiration, non-commercial investors must exit their positions in order to avoid taking or making delivery of the physical commodities. This results in massive flows of capital. Most often, these large flows of capital do not exit the market, but rather shift to new positions farther along the curve in order to maintain their overall (long or short) directional interests.”

FCR uses several proprietary methodologies for analyzing these capital flows, allocating investments across all of the markets, and balancing the positions across both long and short interests using calendar spreads. The strategy employs internally-developed volatility and correlation analyses in order to keep overall volatility down, to reduce correlation of returns to the direction of the underlying market, and to achieve smooth margin to equity ratios, thereby increasing the efficiency of the deployment of capital.

Michael added, “We employ a proprietary methodology that holds both long and short spread positions in each market in order to minimize exposure to underlying market moves. We maintain positions at the front of the curve, never extending beyond the first year. Our model adjusts the relative long and short positions in order to minimize correlation to the underlying directional moves in each particular commodity. We aim to achieve a result which can be profitable in both an upward and a downward trending market of the underlying commodity and not restricted to making a profit only when prices go up (or down).”

By trading calendar spreads, the strategy seeks to avoid the effects of shocks to a market that are felt across the entire curve. Additionally, the strategy frequently holds both long and short spreads simultaneously within a market to further reduce shock risk.

Stonehenge Asset Management, sister company to SCM and manager of the Stonehenge Diversified 1 Fund believes that the addition of this strategy to its portfolio is keeping with its core philosophy that capital flows are the most tradable and consistent factor in price movements. “Both our intra-day and short-term trading strategies are based on this foundation, as well,” Michael said.

“We use proprietary means to adjust both our overall allocations to each market traded and to the sub-allocation within each market to each of the components of the trades described above. We attempt to keep a consistent deployment of capital using proprietary volatility analyses to reduce the overall capital required to target a particular level of volatility and to try to have a more predictable use of capital/margin,” he said.

To speak to Steven Michael,, please e-mail him at smichael@ stonehengeam.com or you can call him 561-952-1655 or visit www.stonehengeam.com...Corporate website: to Source
pd

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Investing - Sequoia takes Facebook stake as shares slide in data controversy, $1.4b hedge fund sees intact fundamentals for Facebook, Jim Cramer reveals some 'suggested hedge fund trades' amid the Trump tariffs[more]

    Sequoia takes Facebook stake as shares slide in data controversy From Bloomberg.com: The $4.2 billion Sequoia Fund bought a small position in Facebook Inc. as the stock slid late in the first quarter, investment manager Ruane, Cunniff & Goldfarb told clients. "The recent controversy enab

  2. Activist Investors - Blue Sky-owned Wild Breads faces uncertain future[more]

    From AFR.com: A Blue Sky private equity investment in artisan-style baker Wild Breads enjoyed multiple valuation upgrades despite losing millions and breaching its lending covenants, accounts lodged with the regulator last week show. Wild Breads lost $2.4 million in 2017, but Blue Sky ascribed a hig

  3. Opalesque Exclusive: Barnegat to close hedge fund to outside investors on weak opportunities[more]

    Komfie Manalo, Opalesque Asia: Bob Treue's Barnegat Fund Management said it is closing its $666m fixed income relative value hedge fund to outside investors. "The negative side to gains in Fixed Income Arbitrage is that unless we find new opportunit

  4. Investing - Hedge fund makes a big bet on malls, British hedge fund manager Odey short UK government bonds on QE bet[more]

    Hedge fund makes a big bet on malls From Barrons.com: The dominant narrative on American shopping malls is that they're dead. Crushed by Amazon.com, many brick-and-mortar retail stores are destined for bankruptcy. And where is the most retail, clustered all together? Malls. From a

  5. Performance - Hedge funds suffer first back-to-back loss in two years, Netflix performance burns hedge fund short sellers, Macro hedge fund up 14.5% in first quarter sees dollar falling, Renaissance Technologies rebounds across hedge funds in March[more]

    Hedge funds suffer first back-to-back loss in two years From Bloomberg.com: Hedge Fund returns sank for a second straight month in March, the first back-to-back loss since the first two months of 2016, as trade wars, tech-sector woes and a Fed rate hike dragged down the S&P 500 from its