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Alternative Market Briefing

Corona Fighters - Report 5: Asset managers who delivered during the meltdown

Friday, April 10, 2020

B. G., Opalesque Geneva:

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

You can read Report 1 here
Report 2 here
Report 3 here
and Report 4 here

Trend strategies capture the bulk of the gains

The estimated net performance for Welton Global is +3.7% for March and +12.7% YTD - after returning +3.8% in January and +4.7% in February. The fund focuses on absolute returns across economic cycles with no correlation to the broader markets through a combination of various quantitative macro strategies. It has annualised 6.6% since its inception in June 2004.

"March 2020 will be studied by market historians for years to come," says a monthly report from Welton of in flagship fund. "There has never been a similar combination of economic shocks, market reactions, and policy responses in so short a time." The strong market reactions created an opportunity for Welton Global, it continues. As Coronavirus uncertainty rose, equity markets began taking pendulous swings each day on the back of headlines, hope, and fear. Energy markets saw tremendous volatility. And commodities across the board fell in March on the back of demand concerns.

The Enhanced Trend and Trend strategies in the fund captured the bulk of the gains as large directional moves emerged across all sectors. Risk Off Alpha strategies engaged broadly and effectively. Short term strategies provided marginal gains. In the energy sector, WTI Crude Oil was the top performing market. And the Trend and Enhanced Trend models came into the month short in agricultural commodities, benefitting from the commodity sell-off. There were gains from long Interest Rate positions and losses in equities and currencies. The portfolio has shed long equity positions and acquired shorts, decreased or exited long interest rate positions, maintained its net short commodity and long dollar positions.

Welton Investment Partners, an alternative asset manager with expertise in systematic strategies, has offices in California and New York City.

Welton will be a presenter in the upcoming Webinar: The Corona Fighters, on April 20th, 2020.

Gains from short oil

The Cayler Energy Program, a fundamental systematic fund that invests globally long and short in a diversified range of liquid energy investments, returned an estimated +15% in March and +18.7% YTD.

California-based Cayler Capital had its best month since launching its systematic strategy two years ago. "Primary gains were driven by short oil," writes portfolio manager Brent Belote in an April 6th communication to investors seen by Opalesque. "Oil closed $23 lower for the month of March and we caught every dollar of that, posting a roughly 17% gain. Relative value trades were a bit muddled, posting a down 2% month. We ended March roughly near the oil lows but things changed drastically when Trump tweeted there was a possibility of a global oil cut which was promptly followed up by OPEC+ announcing an emergency meeting (April 9th)…"

"My take of the entire headline is that the physical oil market is currently causing oil producers to slow or shut-in production. No one wants to buy Saudi oil, Russia is having trouble placing barrels, Canada oil is less than $10, and West Texas has nowhere to go. The real issue is why 'cut production' in silence when the physical market forces your hand? They want to make a splash and shock the world, so they are going to come together and announce a global oil cut when the truth is... they've already had to cut. The fact of the matter is they can't cut enough to combat Covid-19 demand destruction in the short term.

"The physical oil markets continue to look bleak, Covid lockdowns are likely to continue into May, and demand remains poor. I'll leave it at that."

As reported by Business Insider, oil tumbled on Thursday, April 10th - erasing earlier gains of as much as 12% - as investors expressed disappointment in the degree of the production cuts agreed upon by Russia, Saudi Arabia, and OPEC+.

You cannot put your seatbelt on in the middle of a car crash

The Abraham Fortress Fund, which combines traditional investments in equity and fixed income with diversifying alternative investments in institutional-quality hedge funds, managed to protect its assets this quarter.

"As always, risk management is an ongoing priority for our team," says a quarterly report seen by Opalesque. "After analysing the coronavirus outbreak in China during the month of January, we concluded that the virus could aggressively expand and would inevitably have a severe effect on equity markets as it grew. The Fortress portfolio typically consists of 45% equities, 30% alternatives, 20% fixed income, and 5% gold.

"On January 26, in an effort to mitigate the growing risk and instability of equity markets, our team reduced the fund's equity exposure from 45% to 20%. By the end of February, several of our hedge fund investments still had a moderate amount of equity exposure. With those investments already providing small doses of equity, we chose to reduce equity exposure in the fund to 0%. After monitoring the situation for the past few weeks, we reintroduced equity exposure on March 20, raising it from 0% to 30%. We returned to our normal equity exposure of 45% on March 23. The Fortress Fund finished down -1.22% for March, leaving YTD performance at -0.78%." The strategy itself has annualised 5% since 2008.

"That type of intervention by our team only occurred every few years, and we are taking the same approach with this event," the report continues." You cannot put your seatbelt on in the middle of a car crash; you must have it on before it ever begins. We take a proactive approach to risk management and will continue to do so as this event unfolds."

Abraham Trading Company is a 32-year-old investment management company founded and managed by Salem Abraham, and located in Texas. The company participated in the 2010 Opalesque Texas Roundtable.

And others…

A California-based manager made large profits from its equity long/short strategy. Worm Capital's Long/Short Equity Growth fund was up +28.5% in March, and 133.5% YTD - annualising 51% since its January 2017 inception. The long-only equity strategy, however, didn't fare as well in March with a 9% loss, albeit a return of 19% YTD. "Our founder chose the name 'Worm Capital' because he wanted a name that would be unique-and one that would reflect the firm's investment philosophy, research process, and culture," says their website. "Our firm is unafraid to have contrarian viewpoints: we seek our own conclusions based on extensive, deep research. And we avoid the groupthink, copycat mentality associated with much of traditional Wall Street."

Fasanara Capital's Quant UCITS was up +1.46% QTD, annualizing +7.3% and a Sharpe Ratio above 1.7x since its inception in January 2017. Fasanara is an independent alternative asset management company founded in 2011, based in London with alliance offices in Milan.

"Our edge derives from our deep research focused on the dynamics of equity index futures and its derivatives, and our capacity to execute our investment model with limited risk. Fasanara's proprietary algorithms combine the use of volatility, options, and underlying global equity indices, with a typical holding period of 1-2 days, allowing us to offer daily liquidity via our UCITS fund," according to a monthly report reviewed by Opalesque.

Cobia Capital Management protected capital in March, as their fund declined -2.4%, bringing returns for the year to -3.3% vs. -31% for the comparable Russell 2000 Index. Cobia Capital Partners LP is a value-oriented long/short equity fund focused on the small capitalisation technology sector. The Fund seeks to add alpha through deep fundamental analysis and bottom-up stock picking of smaller technology stocks in the U.S., Canada, and Western Europe. It has annualised 10% since its January 2008 inception.

In March 2020, the J8 Global Absolute Return Strategy was up +11% vs. S&P500 down -12.51%. YTD, it is up +6.7% vs. S&P500 down -20%. The fund, launched in 2018, is formulaic and fully systematic. It trades liquid exchange-traded futures on 20 commodity markets, futures on G10 currencies, and futures on North American and European government bond markets only. "J8 offers a viable solution for current systematic manager allocations to withstand any gyrations for the foreseeable future," says manager Dr. Tillmann Sachs in a communication to investors seen by Opalesque. "Our J8 Global Absolute Return Strategy (J8 GARS) is an enhancement over CTA beta, using a multi-factor model. We add tactical risk premia strategies to a traditional CTA beta momentum allocation. By trading long, short, and market neutral spread positions, we can benefit from rising and falling markets and market inefficiencies. This multi-factor approach creates opportunities for additional upside and stabilizes the return stream." J8 Capital is based in London.

Dr. Tillmann Sachs was interviewed on Opalesque TV here.


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.



- 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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