Thu, Jul 31, 2014
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. Opalesque Roundtable: Success in hedge fund marketing not linked to performance, but investor appetite[more]

    Komfie Manalo, Opalesque Asia: Success in marketing a fund is not linked to the performance, but to investor appetite, to the way you can market the fund, and to how much time you can spend to raise assets, said Antoine Rolland, the CEO of incubator and seeding firm

  2. Hedge fund manager Winton Capital making headway with long-only strategy[more]

    From PIonline.com: North American investors are helping Winton Capital Management Ltd. make progress — albeit slowly — toward its founder's goal of becoming a $100 billion company. The firm's ticket to quadrupling its assets under management is unlikely to be one of its scientifically designed manag

  3. Opalesque Radio: Now is a good time to buy protection cheaply in the options market[more]

    Benedicte Gravrand, Opalesque Geneva: Investors are showing an increased interest in risk parity funds and strategies, Opalesque reported last year. Risk parity strategies have the

  4. The Big Picture: Charlemagne Capital smoothes risk out of frontier market investing with portfolio approach[more]

    Benedicte Gravrand, Opalesque Geneva: Opalesque recently talked to one of the portfolio managers of the Oaks funds, which are emerging and frontier market hedge funds focusing on equity long/short with a directional approach. They are run by

  5. Winton’s low-cost equities fund tops $1bn for first time[more]

    From FT.com: Winton, the London-based hedge fund, has increased the assets in its low-cost equities fund to more than $1bn for the first time in a sign that traditional stock managers may come under increasing pressure from computer-driven rivals. Winton, which manages about $25bn in total ass