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By Opalesque Geneva: A market neutral strategy built on engineering principles, that has been evolving for almost 20 years, continues to deliver its projected returns.
MoSAIQ-Market Neutral NM is an all-weather, market neutral, absolute return
strategy that relies on behavioral finance and AI, and is based on contra consensual paradigms, i.e. concepts that are at odds with the norm in the industry.
It seeks to generate double-digit average yearly returns throughout
market cycles with no to minimum numbers of negative years - an objective
the strategy has met since inception. According to documentation seen by Opalesque, the strategy had a mean annual return of 15.7% (volatility of 15%) from its October 2016 inception to April 2025 - compared to 7.9% (vol 9%) for the HFRI Equity Hedge Total index.
Initially, the MoSAIQ software was used to implement investment strategies in a Swiss private bank. Between 2019 and last year, the market neutral strategy was housed by Icon Asset Management AG. Meanwhile, Elias Nechachby, who started MoSAIQ, founded ROQS-Partners SA in Geneva.
Elias Nechachby, CFA, will present the MoSAIQ strategies at the Small Managers - Big Alpha Episode 17 interactive webinar on June 10th (details below).
New beginning
"ROQS owns the MoSAIQ IP and develops MoSAIQ strategies," Nechachby tells Opalesque. "The rationale for us is to focus on where we can add value, that is, the investment strategy development, and outsource the regulatory part of the business that is highly commoditized."
The ROQS (Return Oriented Quantitative Systems) R&D team follows the
Kaizen principle, seeking permanent improvements to the strategy aiming at increasing its robustness and performance over time. (Kaizen is a Japanese business philosophy that aims to make small changes over time to drive ongoing improvement.)
Nechachby is currently managing proprietary capital until the conclusion of a new asset management partnership, which is taking place in the coming weeks. He will then relaunch the MoSAIQ Market Neutral Actively Managed Certificate and open to external investors.
Aerospace engineering
Drawing on his unique background that combines aerospace engineering, technology and finance, he developed the first MoSAIQ models in 2006 which later became his HEC Paris, NYU Stern and LSE MBA term project in 2011.
Aerospace engineers build systems to a global standard where probability of undetected failure is 1 in 1 billion. They take a "failure is not an option" approach to risk management because they are dealing with human lives, where no losses are acceptable. Of course, while his control systems are stringent, none is completely immune to the randomness of financial markets. But his product has that distinct investment engineer's built, with a blend of hedges which protect against drawdowns and can also provide upside in certain market environments. He combines the aerospace engineering-like investment philosophy to his investment strategy "by building independent redundancies, which in aeronautics is the basis for achieving high integrity," he says. Indeed, aircrafts tend to have many systems, such as computer systems, running in parallel so as to provide enough redundancy to cope with breakdowns.
Low market correlation
Using proprietary modelling based on behavioural finance as a core paradigm, and leveraging genetic algorithms, machine learning and AI ensemble, the strategy builds a concentrated portfolio of around 20 to 35 highly liquid and usually equally weighted mainly S&P 500 and NASDAQ100 securities. The portfolio also uses a combination of hedges to protect against drawdowns, and a volatility long/short component aiming to provide additional decorrelated alpha to the strategy.
This combination gives the strategy upside potential in a wide variety of market environments.
A typical equity market neutral strategy seeks to hedge against directional market exposure by taking offsetting long and short positions.
What essentially differentiates his strategy to other systematic market neutral strategies lies in the way market neutrality is sought.
"Our market neutrality is achieved by having a low monthly correlation with the S&P 500 overall but not at each point in time," he explains. "Sometimes we are highly correlated with the market, sometimes we are highly negatively correlated with the market but overall, over the long run, our average correlation with the market is close to zero. Our approach to market neutrality, contrary to the industry approach, doesn't limit our performance ability; that is why we are able to achieve double the IRR of similar market neutral benchmarks such as the HFRI Equity Hedged.
"Our approach is based on having independent engines that seek to be the leading performance sources in different market environments and regimes, and based on independent alpha drivers, therefore allowing both robustness and double-digit performance to be achieved."
The HFRI Equity Hedge Total index, the strategy's benchmark, is down 1.15% YTD after a flat April. The HFRI Equity Market Neutral Index is up 2.8% YTD after returning 1%.
Related article:
Opalesque Exclusive: Don't be fooled by recent bias
Upcoming Webinar:
Episode 17 of this ground breaking webinar series presents you another carefully screened panel of investment managers. In one hour, you'll meet them all, get to know their top quartile strategies, and - since this an interactive session - you will be able to ask questions.
Free registration: www.opalesque.com/webinar/
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