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Alternative Market Briefing

Systematic trend following hedge fund switches engines with markets

Monday, October 03, 2022

Ted Parkhill
B. G., Opalesque Geneva:

A strategy that claims to capture trends that many investment models don't, does so through an original two-engine system, where each engine can take over depending on the market.

The Tahoe Fund, L.P., managed by Incline Investment Management, runs that strategy. It uses a proprietary Systematic Hybrid™ trend following program that has two "alpha engines": the first engine monitors 72 global futures markets and invests long or short as trends break out to capture returns in both up and down markets. It largely focuses on commodities, interest rates, energy, currencies, stock indices, and metals.

The second engine invests long-only in large cap US equities, mainly in consumer discretionary, materials, health care and financials. A short index futures position is used in a defined market downtrend to hedge the portfolio. The effect of the "hedge" can result in net short equity exposure.

Finally, risk is managed through position limits and sizing, dynamic stops, diversification, entry and exit points, and liquidity controls.

"Together both engines create a robust strategy that can find returns in bull or bear markets," according to the managers. "In periods of low volatility, the equity engine drives performance. When volatility increases, the futures engine takes advantage of the increased magnitude and number of moves in global markets."

Whereas traditional managed futures portfolios hold 85% of their portfolios in cash, Systematic Hybrid enhances returns by generating an additional return stream, they add.

The fund was up 22% YTD at the end of September, according to documentation seen by Opalesque.

Ted Parkhill, CEO of Incline Investment Management (IIM), will present at the Small Managers - Big Alpha Episode 10 webinar on October 4, at 11am ET. He has over 25 years of management experience in the investment business, and before co-founding IIM in 2010, he was president at Parkhill Financial and assistant professor at Sierra Nevada College.

He manages the Tahoe fund together with Todd Hurlbut, CIO, who prior to IIM was a principal, founder and managing member of Everett Capital Management, LLC.

The stock market never changes

The philosophy behind IIM's type of investing rests on the principles that, firstly, prices reflect the sum of the knowledge of all market participants, and secondly, investor behavioural biases repeat over time, which in turn help to exacerbate directional trends. And a systematic approach can best capture these directional moves. In the end, the managers say, systematic discipline is more prudent and logical than ego-based investing. And lastly, trends persist longer than people think.

The managers quote Jesse Livermore, an American stock trader considered a pioneer of day trading, who said in 1940: "… Human nature never changes. Therefore, the stock market never changes. Only the faces, the pockets, the suckers, and the manipulators, the wars, the disasters and the technologies change. The market itself never changes. How can it? Human nature never changes, and human nature runs the market - not reason, not economics, and certainly not logic. It is our human emotions that drive the market, as they do most other things on this planet."

The fund

The $23m fund was launched in July 2012 and has returned 111% since, outperforming the HFRX Macro Systematic Diversified CTA Index.

At the end of September, this HFRX Index was up 24% YTD and the SG CTA index 26%.

Incline Investment Management LLC is an alternative asset manager based in Incline Village, Nevada.

Next webinar:

Small Managers - BIG ALPHA, Episode 10

Episode 10 of this groundbreaking interactive webinar series presents you with another panel of exceptional investment managers:

• Manjeet Mudan, Carmika Partners
• Aman Oberoi, K2Q Capital
• Ted Parkhill, Incline Investment Management
• Pascal Rohner, Katch Investment Group

When: Tuesday, October 4 at 11 am ET

Free registration:

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