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Alternative Market Briefing

Systematic hedge fund thrives on market timing

Thursday, June 03, 2021

Heeten Doshi
B. G., Opalesque Geneva:

Many investors, academics, and financial professionals believe market timing is impossible. Other investors, especially active traders, believe strongly in it.

Market timing is most popular at the bottom of bear markets and least popular at the late stages of a bull market. Buy-and-hold behaviour is the reverse. Currently buy-and-hold seems to be more popular than it has been in at least a decade, which may suggest the bull market's end is near, says MarketWatch.

But according to some, market timing, if applied correctly, can be an effective strategy - even now. Opalesque has recently paid a virtual visit to a manager who is doing just that.

Heeten Doshi founded New Jersey-based Doshi Capital Management in 2011 with the goal that investors should be able to generate returns in any market environment, including events such as the 2000 dotcom crisis and the 2008 housing crisis. He has more than 15 years of investment experience with previous positions at Brown Brothers Harriman, Morgan Stanley, and Lehman Brothers. He manages the Doshi Systematic Strategy Fund, launched in 2012 - but only recently opened to outside investors after a long development phase.

The Fund employs a market timing systematic strategy. It is also algo-driven and it uses a proprietary model that determines risk-on and risk-off periods for the overall U.S. equity market and takes into account a multitude of investing disciplines.

Market timing is possible

Market timing is the act of moving investment money in or out of a financial market or switching funds between asset classes based on predictive methods.

The conventional wisdom on market timing is that you cannot time the markets, Doshi explains during the recent Opalesque TV interview. "While on a day-to-day basis I would tend to agree with that, over a short to intermediate term, over weeks and possibly months, our view is that you absolutely can time the markets." According to him, market timing is possible on a weekly and monthly basis in order to position a strategy according to risk-on and risk-off periods of the market.

He times the markets by breaking it into three different components: he looks at contrarian and momentum data, breaks it into market data and behavioural data, and then breaks it down into speed of algorithms.

Doshi uses a proprietary earnings revisions indicator. "There's been a lot of academic research behind earnings revisions and the impact that it has on investors," he says. An earnings revisions investment strategy is based on empirical evidence that stocks with earnings forecasts that were recently upgraded by analysts tend to outperform, while stocks with negative earnings revisions tend to underperform.

Doshi also looks at data for fixed income, commodity prices, interest rates, volatility, economic sentiment, and trader positioning. "So we look at a wide array of data that goes into the model to forecast the risk-on, risk-off periods."

What is unique about the strategy is the market timing aspect, he says. "There are other strategies that use tactical asset allocation that switches between assets but we have never seen another market timing strategy. Because of that market timing aspect, our strategy is uncorrelated to almost any other asset that's out there… We defy that conventional wisdom that you cannot time the markets, and we have done it effectively and successfully. We have the data to back it up."

Diversifying away two types of risks

To execute the strategy, Doshi uses S&P e-mini futures and long-term treasury bond futures, for both liquidity reasons and for tax efficiency.

There are two types of risks, he says. "There is unsystematic risk, which is single-stock risk and then there is systematic risk, which is the macro risk. Our strategy diversifies away both of those because we invest in the overall index so we are not taking single-stock risk, and we diversify systematic risk just by the nature of the market timing of the strategy."

It is a macro model and it looks to avoid larger events, he continues. "Our focus has been on cycles. In my past history and career, we have done a lot of work on macro-cycles. So embedding that cyclical work into this model allows us to forecast these mini-cycles in the market. The benefit of the strategy is that it provides a lot of diversification; it is uncorrelated to almost any other asset class."

In short, Doshi relies on multiple market and economic factors and a deep understanding of how they contribute to price movements. The manager invests in different asset classes with different return drivers through the use of tactical asset allocation. Tactical asset allocation strategies allow him to achieve true diversification. The managers seek to minimize both systematic and unsystematic risks by employing true diversification in two ways: by diversifying the factors that impact returns, and by using an uncorrelated investment strategy. The fund ended 2020 up 147%.


Upcoming webinar:

Small Managers - Big Alpha - Episode 2

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 such investment managers.

Robert Zuccaro, Target QR Strategies
Mukhtader Mohammed, Arbitrium Capital Partners
Craig Reeves, Prestige Funds
Mark O. Witten, Portal Asset Management

• When: Tuesday, June 22nd at 10:30 ET
• Free registration:


You can watch the whole interview on Opalesque TV here:

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