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Alternative Market Briefing

Corona Fighters - Report 2: Asset managers who delivered during the meltdown

Tuesday, April 07, 2020

B. G., Opalesque Geneva:

In the midst of the current market turmoil, this is the second of our regular reports on hedge fund managers who bucked the trend.

Report 1 can be found here.

Contrarian and uncorrelated

R. G. Niederhoffer Capital Management's flagship fund, the Diversified Program, returned +0.4% March and +25% YTD. It is a systematic, short-term trading strategy launched in 1993. The program claims a consistent negative correlation to equities and funds of hedge funds and low correlation to CTAs. It has a contrarian bias, combining core mean-reversions themes with momentum strategies. It is very liquid and highly diversified. The New York-based firm calls it a "rare true alpha strategy". Since September 1995, it has annualised almost 5% with a volatility of 19%.

The firm's Smart Alpha Program 2x, a subset of the Diversified Program and also a systematic short-term strategy, returned +5.8% March and +13.6% YTD. This program invests in 16 global fixed income and FX markets. According to a report seen by Opalesque, "the strategy performs particularly well in volatile market conditions when investors are most susceptible to biased, predictable behaviour. Because of this, the strategy is long realised volatility." And it also shows negative or low correlation to equities, bonds, hedge funds, and CTAs. It has annualised 11.4% since January 2000, with a 10% volatility.

Roy Niederhoffer, founder and president, is also known for his engaged support of the NYC Opera. He will be a presenter in the upcoming webinar: The Corona Fighters, on April 20th, 2020.

The one that launched in February

London-based Carbon Cap Management launched the World Carbon Fund in the last week of February 2020 and so got its baptism by fire.

The fund invests across multiple liquid and regulated carbon markets, targeting both absolute returns and a direct impact on climate change. It trades mainly futures and options contracts linked to carbon. The fund operates within a defined risk limit of 10% monthly VAR and expects to experience annual volatility of approximately 15%.

This risk budget is allocated across two complementary strategies: (1) Core long and hedges, where it captures medium to long term secular bull market in carbon, supplemented with hedges when appropriate; (2) Alpha strategies, where carbon markets are dominated by "compliance entities", creating significant opportunities for relative value, arbitrage, and options trading alpha strategies.

Due to the recent market volatility, the emerging manager's fund has deployed capital slowly in the "Core Long" strategy and now has exposure in all three main carbon markets with hedges. Within the "Alpha Strategies," the increased volatility has created unusually good opportunities to generate positive returns through relative value and options arbitrage strategies.

Michael Azlen, founder and CEO, says the combination of these two strategies has proven to be effective and overall, it is estimated that the fund has generated approximately +7% in March.

Related article: 20.March.2020 Opalesque Exclusive: Carbon Cap launches World Carbon Fund

Azlen will present today's webinar: Climate Change and Carbon as a Liquid Asset Class
At 10am EST
You can register here:

A better way to buy and hold

Brandywine True Alpha was up +4.70% in March, +0.70% YTD. And Brandywine Alpha Hedge 500 was up +0.5% - compared to -19.6% for the S&P 500 TR - and +0.30% YTD. Last year the hedge fund, which started trading in 1991, was up 37% versus 31% for the S&P 500.

The funds are managed by Brandywine Asset Management, a boutique fund manager located near Philadelphia, PA. Founded in 1982, Brandywine pioneered "Return Driver"-based investing and true portfolio diversification (a Return Driver is the primary underlying condition that drives the price of a market over a given period of time). This approach demands an understanding of the source of returns for any given investment, says the firm's website. Although this sounds like an obvious requirement, it is actually in stark contrast to commonly-employed money management methods based on capturing "intrinsic" returns or profiting from "risk premia."

"Brandywine didn't anticipate what happened this year, yet we still posted positive returns," says Mike Dever, founder, CEO and author, in his March update. "That's because our Brandywine Alpha Hedge program - while continuing to maintain 100% long equity exposure - directly protects against losses. (It is) what we call 'A Better Way to Buy and Hold'."

Some of the best-known hedge fund managers, investment firms and investors are buying stocks now with both fists, he comments. The consensus is that there will be a V-shaped recovery. But he believes that COVID-19 may leave a long tail. "This bear market will be longer and deeper than everyone is currently predicting. There is no imminent V-shaped recovery." See past Opalesque interviews of Mike Dever here and here.

And others…

The Altair Fx Alpha program, managed by Altair Quant Macro Fund Management, returned +1.73% in March and +7% YTD. This Connecticut-based emerging manager runs fully systematic, intra-day trading strategies applied to FX and Quant Macro. The strategies have non-correlated returns, daily liquidity, and no overnight risk. Managing partner Ted Kanarek also serves as a board member to an MFO and says the families are very frustrated with the strategies that haven't protected on the downside when so many stressed strong risk management systems in place. "The firings will be swift."

The Auspice Diversified Program, run by Canadian manager Auspice Capital Advisors, gained +9.72% in March, compared to the Barclay BTOP50 CTA which fell by 1.14% for the month. The program, incepted in 2007, is up +7.25% YTD. The strategy is a rules-based multi-strategy investment program designed to deliver superior, non-correlated returns at critical times. It gained from shorts in energy, commodity currencies, and longs in VIX.

"Our outlook is simple," says their monthly commentary. "The volatility and unknowns are likely to bring about many more surprising trends. This will occur beyond equities in currencies, bonds and especially across the diverse commodity sector. This will likely provide a series of opportunities for our disciplined approach. We anticipate this period lasting for the rest of 2020 and into 2021."

Paris-based Quantology Capital Management did well in two of its quant funds. Quantology Absolute Return U USD, launched in mid-2016, returned +3% in March, +4.9% YTD. It is a quantitative long/short US market-neutral equity fund that relies on a proprietary model based on Post Earnings Announcement Drift. Its investment universe is the Nasdaq Index. The Quantology Absolute Return I EUR Hedged is up +4.6% YTD.

"Given the challenging market conditions, Quantology CM has decided to limit the counterparty risk to 1% of the AuM on Quantology Absolute Return. Liquidity risk is negligible as our investments only occur in US mid and large caps," says a communication to investors seen by Opalesque. The manager is organising a video conference today at 2 pm CET.

Related article: 02.March.2020 Opalesque Exclusive: Quantology Absolute Return bucks the trend with a positive start to the year

Saving the best for last, New York-based Bluesky Capital's Systematic Crypto, launched in 2017, returned +24% in March and 70% YTD. The strategy has the objective of delivering uncorrelated returns by investing in a basket of around 15 cryptocurrencies. The strategy is fully systematic and decides whether to take a long or short position using statistical analyses based on price data. The risk management module targets a constant portfolio volatility of 40% independent of market conditions. The firm's other fund, Quant Global Macro, also launched three years ago, is up +5.2% YTD - albeit with a 0.8% loss in March. The strategy invests systematically in a broad portfolio of financial instruments across all asset classes, including equities, fixed income, commodities, and currencies.


Disclaimer: This is not investment advice. Opalesque has not verified this information and gives no warranty of accuracy or completeness. Past performance is not indicative of future results. See our Terms & Conditions for more information.



- Climate Change and Carbon as a Liquid Asset Class with Michael Azlen, TODAY!
April 7th 10am EST

- The Corona Fighters: Meet the asset managers that actually delivered during the melt down

- Episode 1: Monday, April 20th, 10 am EST

Opalesque will present several investment managers who will give a succinct presentation on how and why their strategies delivered positive returns and/or protected during the Corona led market meltdown, with Q&A session.

For investors only - register now as seats are limited:

- COVID-19 Survival Training for Family Businesses
April 15th, 10 am EST

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