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B. G., Opalesque Geneva:

As of September 8, smn Diversified Futures Fund, which employs a systematic long-term trend-following strategy, is up 15.5% YTD.

This is the fund's institutional share class, called i14, which started in February 2015 and has annualised 9% up to the end of August with only three down years.

The Luxembourg SICAV's original share class was launched in November 1996 and has weathered many flavours of markets with remarkable robustness throughout its long life. Starting with the Russian crisis of 1998 (when it returned 20%), the Dotcom Bubble from 2000 to 2003 (yearly returns from 10% to 37%), the financial crisis of 2007-08 (15% and 63%), the Euro crisis of 2010 (18%), the pandemic of 2020 (14%) and inflation together with quantitative tightening in 2021-22 (41% and 13%) - the fund's model has proven its ability to apply crisis alpha when it counts. The 1996 fund is up 13.9% YTD.

Crisis alpha and trend-following are different concepts. Crisis alpha describes investment strategies designed to generate positive returns during financial market panics, while trend-following is a strategy that can sometimes capture crisis alpha.

As well as robustness, translated as avoidance of optimisation and of style drift combined with disciplined research, and the application of crisis alpha, the Fund can also boast the use of synthetic markets, which is a wide combination of markets and instruments, and structural alpha markets, which are regional, less liquid markets with a focus on commodities. The Fund also applies capacity constraints to reduce risks.

The investment principles rest on the ebb and flow of market trends, which the managers can recognise through their analysis. Their trend-following investment strategy is non-predictive and is based on a sole assumption: the continued occurrence of medium to long-term trends in financial and commodity markets. Based on the identified trends, buy or sell signals are systematically generated to assume long or short positions. The automated trading models enable many trades in many markets and instruments, without involving the wild card component: human emotion.

2023: a tale of two periods

2023 so far has been an experience of two regimes, explains Christophorus Lehmann, business development manager at Smn Investment Services, to Opalesque.

The first one, in January and February, was plain sailing. The markets were "rather mixed, neutral or slightly negative, but nothing really magical happened."

Then the tempo changed in March, with the run to safe havens caused by the US regional banking crisis, the Credit Suisse meltdown, and last year's large short-bond trades that reversed abruptly. The Fund lost -1.6% that month. But other quantitative, trend-following CTA strategies posted sharp declines because of their short fixed-income exposures; the HFRI Macro (Total) Index fell -3% and the HFRI 500 Trend Following Index lost -5%.

"So this was one of the founding stones of our performance this year. We managed to get through March with a minor negative performance," Lehmann says.

This was partly thanks to the Fund's risk management which had reduced the short bond exposure before the meltdown and had also lowered exposure to interest rates.

The March performance can also be attributed to the CTA's typical commodity exposure - where half the risk exposure is normally allocated. The strong trade in commodities helped make up some of the month's losses. Commodities also played a big role in the April and May performances of 9.5% and 4%, respectively.

Christophorus Lehmann will participate in a panel that will discuss the role of the smn Diversified Futures Fund in different kinds of portfolios, CTAs' lost decade, CTAs' performance since 2020, how to apply crisis alpha, and more during Opalesque's next webinar on 26 September (details below).

Smn Investment Services GmbH was founded in 1996 by Alexander Svoboda, Christian Mayer and Michael Neubauer. Based in Vienna, Austria, it is AIFM-certified and registered as a CTA with the NFA.

Upcoming webinar

INVESTOR WORKSHOP: How to Crack the Magic Triangle of Diversification, Crisis Alpha and Returns

Join us for this Investor Workshop and learn how Vienna based SMN has been achieving the three coveted outcomes of diversification, crisis alpha, and attractive long-term returns.

When: Tuesday, September 26th at 11 am ET

Details and free registration: www.opalesque.com/webinar/