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Alternative Market Briefing

Market neutral manager gains on defying the norms

Tuesday, May 04, 2021

Elias Nechachby
B. G., Opalesque Geneva:

The ICON-MoSAIQ-Carmika Market Neutral Strategy was up 9.3% (net) in Q1-2021 after returning 41% in 2020. The manager, Icon Asset Management, attributes the returns to its dynamic and permanent hedge, a behavioural finance bedrock, statistical modelling and artificial intelligence.

"Often when we speak to investors, they wonder how we are able to generate high returns with controlled drawdowns all the more so as we maintain an under-levered equity exposure," portfolio manager Elias Nechachby tells Opalesque.

"Our portfolio's average equity exposure is below 80%, it has a dynamic as well as a permanent hedge. Hedging is more often than not perceived as an additional drag on portfolio performance and as a cost. The reasons for these erroneous perceptions are judgment heuristics, deeply rooted ideas, and misunderstandings that exist in the industry when it comes to leverage, risk, hedging and model design and development; something we will touch upon further during our next Opalesque webinar."

Nechachby, who has spent more than 20 years developing financial software for tier-one asset managers, developed the first MoSAIQ model with behavioural finance as a core paradigm in 2006. He will be presenting in Opalesque's next webinar, Small Managers - Big Alpha, on Tuesday 11th May.

"It's very important in order to create investment strategies that defy the norms, to challenge normal thinking in your design and development processes," he continues. "That's what we strive to do. The strong paradigm that underlies all that we do is behavioural finance. Using on top of this paradigm, statistical modelling and AI empower our endeavour by giving us results more quickly and more efficiently than before these techniques and tools were widely available."

The fund

It is through this process that Icon's flagship strategy was up more than 10% in March 2020 while the S&P500 plunged more than -12%. "Our strategy ended 2020 up more than +40% net with a Sharpe ratio above 3. The Strategy continues to perform this year with a performance of more than +15% net as of the end of April 2021 and maintains a very high Sharpe YTD well above 4," Nechachby adds.

The HFRX EH: Equity Market Neutral Index is up 3% YTD as at the end of April, after returning 8.4% in the last 12 months.

The ICON-MoSAIQ-Carmika Market Neutral Strategy is an all-weather strategy that achieves its returns through the MoSAIQ automated systematic non-discretionary trading of highly liquid stocks and futures, and the Carmika discretionary index options hedge position building. The strategy without the Carmika hedge has been live since September 2016. MoSAIQ and Carmika have combined since the beginning of October 2019. The strategy was up 13.5% in Q4-2019.

The firm

Zurich-based ICON Asset Management, which was mentioned in the Corona Fighters series, was founded in 2006 by Richard Toolen CEO. Elias Nechachby, MoSAIQ's founder, joined later. Before ICON, Toolen worked at Daiwa Securities Europe in Frankfurt and Nechachby at PWC, Sunguard, and TradingScreen.

ICON is a platform that incubates and supports emerging managers with outperforming strategies. The support includes regulation, compliance, fundraising, and pairing with investors.

ICON and MoSAIQ also have their own products that are based on behavioural finance and use artificial intelligence (AI), genetic algorithms, and neural networks to design and develop their models. The partnership ICON-MoSAIQ got a third partner in 2019, London-based hedge fund manager Carmika Partners, to improve on the strategies' robustness.

"The US Market/S&P 500 rose in March 2021 on accelerated COVID vaccination statistics, despite rising government bond yields coupled to rising inflation and economic growth expectation," according to a March commentary. ICON's strategies benefited from good positioning in terms of volatility, hedging, and long stock position. March was the second month in a row where all strategies posted positive performance despite negative pair correlation, a very rare streak.

Related article:
03.Sept.2020 Opalesque TV: Meet a Swiss fund manager who hedges with a difference

Next webinar:

Small Managers - Big Alpha

With larger quantities of capital chasing the same alpha strategies and continuing to erode Alpha, savvy investors are turning to smaller and/or emerging managers as they look for alternative sources of return. Opalesque presents a carefully screened panel of investment managers worth taking a look at.
- Nadine Korehnke, Quantumrock
- Elias Nechachby, Icon Asset Management
- Paul Lucek, Ridgedale
- Richard Simmons, Derby Street

When : Tuesday, May 11th, 2021 at 10:30 am ET
Free registration here:

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