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B. G., Opalesque Geneva: Amid the current market turmoil, this is our regular report on hedge fund and alternative asset managers who are bucking the trend.
Bitcoin strategy designed to perform in high volatility
The ExoAlpha Multi-Assets strategy is a quantitative systematic directional long/short strategy trading digital assets (essentially Bitcoin, Ethereum, XRP, Bitcoin Cash, and Litecoin).
The strategy was up +41.30% net of fees in March 2020 (and +78% YTD) while bitcoin was down 25% over the month.
It is managed by ExoAlpha, a quantitative trading firm specialised in digital assets based in Paris. David Lifchitz, former director of risk management of the US branch of Ashmore Group, is the CIO.
Cryptocurrencies have suffered their two major bouts in March. On the March 12th crash, "the first downside of the day was caused by traders de-risking
as global equity markets were selling off," ExoAlpa explains in the March newsletter. "In a second time,
lenders were liquidating collateral, belonging to borrowers who
became insolvent as a result of the first downside of the day.
Miners shut down their rigs while markets were collapsing. As spot prices fell as a result of collateral liquidations, a
cascade of liquidation started, and many market makers simply
stopped providing liquidity until the market settled down… In the middle of the storm, Bitmex infrastructure crashed for
more than 40 minutes, leaving investors high dry."
"Bitcoin being the main digital asset, now 10 years old, with a market cap of roughly $120bn at the end of March 2020, has demonstrated strong performance and a low correlation to traditional assets, making it a unique asset class. However, its strong performance comes with a very high level of volatility and steep drawdowns, making it hard to include passively in an investor's portfolio.
"On March 12th, Bitcoin lost more than 40% in less than an hour. In this market configuration, algorithmic approaches with strong embedded risk management are the best way to minimize drawdowns and potentially take profit of the situation thanks to
short strategies, which is our mission at ExoAlpha."
Source: ExoAlpha
"We're heading for another +20% net in April, taking us to +93% net of fees YTD," says ExoAlpha.
Cryptocurrencies have recovered since March. The entire market capitalization or value of cryptocurrencies jumped $35.3 billion in 24 hours, CNBC reported on April 30th. Bitcoin was at $9,388.30 - or up 18.57%. Industry participants attribute the rally to two factors: central bank monetary policy, as well as an upcoming event known as bitcoin halving.
"My sense is that overall markets are not reflecting reality on the ground though, but this is also the result of the Fed in the U.S. being extremely clear that they will do anything to make sure there is economic stability," Vijay Ayyar, head of business development at cryptocurrency exchange Luno, told CNBC. "We could be seeing a lot of money flowing into equities and crypto as well, as a result of the new money printing."
New machine learning strategy in New York
Next Alpha was flat in Q1 2020, and has returned +40% since inception in April 2019, compared to the S&P 500 which has returned -8.5% since that date.
Next Alpha is a quantitative alternative investment strategy powered by machine learning, utilizing mathematics, big-data and technical indicators paired with proprietary technology and highly advanced quantitative strategies within a non-linear market and operating environment. The strategy seeks to leverage proprietary systematic processes to rapidly assess large amounts of data, gauge market sentiment, predict market movements, and initiate long and short positions to generate alpha. It has a U.S. investors class and a non-U.S. investors class.
Kanen Flowers is the CIO of Next Alpha Capital Management, which is located in New York and was founded in January 2019. He has two decades of experience building big data, advanced algorithms, and machine learning technologies.
"All systematic trading involves driving prices toward what is understood as "fair value"," explains a summary reviewed by Opalesque. "Our system is unique in this regard -- rather than continuously exposing our portfolio to constant risk as a linear model would, our system leverages our unique information advantage to keep risks at a comparatively low level until it automatically identifies unique opportunities and mispriced instruments."
New zero-correlation hedge fund
NN2 Capital (or NNSquared) is in the process of being launched by Nam Nguyen Ph.D., who has 20 years of experience specialising in developing mathematical models for pricing derivatives, and Gary Norden, who has 30 years of derivatives trading experience.
"Our fund includes a variety of trades, in different markets, each with different characteristics, thereby providing diversification to help protect the fund's overall performance," says a fund presentation reviewed by Opalesque. "Particular focus on trades with negative or zero correlation to Buy and Hold equities in order to make the fund appealing to equity investors looking for diversification/hedge."
According to the managers, all of their trades are in profit for 2020 so far.
"We use both qualitative and quantitative methods to design and test our strategies," Nguyen told MigageNews.com. "We are not just data mining looking for good trades, we specifically design trades to have around zero correlation to equities."
"We have been pleased that YTD in 2020, not only have all of our trades been profitable but their correlations to equities have been stable, exactly as we designed," said Norden. Applications for investors will open shortly.
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Last issue of The Corona Fighters Report here: Report 20.
To see all past reports, type Corona Fighters in our search engine here: www.opalesque.com/index.php.
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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.
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