Alternative Market Briefing

Corona Fighters - Report 4: Asset managers who delivered during the meltdown

Thursday, April 09, 2020

B. G., Opalesque Geneva:

In the midst of the current market turmoil, this is the fourth of our regular reports on hedge fund managers who have bucked the trend.

You can read Report 1 here.
You can read Report 2 here.
You can read Report 3 here.

Looking to convert option rich cash balance back into risk positions

Logica Capital Advisers, a fund manager based in Los Angeles, CA, reported positive results in its two alternative products.

Logica Absolute Return was up +8.6% in March, +20.8% YTD. This strategy systematically exploits mispricing of simple, vanilla options across all strikes and expiries, and monetises during volatility spikes to profit from short term moves.

Logica Tail Risk was up +13% in March, +28% YTD. Comparatively, the S&P 500 was down -12.5% for the month and -19.5% in Q1-2020. The Tail Risk strategy systematically combines a volatility arbitrage strategy (which is never short volatility/gamma) with equity call options and other defensive/"risk-off" strategies.

"Logica remains committed to expressing our humility in our trading strategy," says a communication to investors seen by Opalesque. "As volatility begins its inexorable retreat, we are again looking to deploy capital and convert our option rich cash balance back into risk positions that demonstrate appetizing reward. In both Logica Tail Risk and Logica Absolute Return, we understand that we cannot know the future, but that there are phenomena that do not appear to have run their course - namely the passive sector continues to take share from the active manager segment, and historically low-interest rate policy from central banks results in demand for volatility dampening yield enhancement strategies. One piece of evidence that continues to support this thesis is the continued outperformance of momentum strategies deep into this crisis. If salaried employment (and hence 401Ks) is supported by the stimulus, we believe there is a very good chance that currently vindicated bears will again be running for their caves due to the impact of passive share gain. But of course, if we're wrong our downside is always rigorously protected."

The Logica Absolute Return Fund, Logica's first commingled product, launched on April 1st, 2020. The next subscription date is May 1st, 2020.

Now is not the time for indiscriminate buying

The 1798 Fundamental Strategies Fund, a diversified multi-strategy fund of hedge funds with a focus on niche and innovative portfolio managers with proven track records, saw most of its returns from its long/short US consumer equity strategies, its equity market neutral strategies and its equity hedge strategies. It gained 10% (est.) net in March, and 10.09% YTD, compared to the HFRI Fund Weighted Composite Index's -8.45% YTD return. Since its November 2007 launch, the fund has annualised 5.6% with a volatility of 8%. It manages $711m in AuM and it is run by Lombard Odier Investment Managers, the asset management division of Lombard Odier Group, a 200-year-old independently owned Swiss private bank.

As markets appear to stabilise, indiscriminate selling has created attractive relative value opportunities, Lombard Odier commented on its website yesterday. But, this is not the time for indiscriminate buying.

"Companies that are strategically important, because of the number of people they employ or because of the importance of what they produce are likely to be more protected," the commentary continues. "Companies that are asset rich, have high revenue inelasticity and can continue to pay a dividend should fare better than those facing liquidity pressures and are asset-light. Companies that seek government support may be prevented from cutting costs, putting pressure on equity valuations. Credit will be largely supported by central bank activities, creating opportunities for credit and equity differentiation. Countries that are more self-sustainable and do not have to import critical items are likely to do better. Some emerging markets might find themselves under particular pressure.

"It is too early to tell the extent of these differentiations, but having more flexible investment vehicles could be a key advantage in the coming months. Relative value hedge strategies, for example, could benefit from relative value situations."

Lombard Odier Asset Management participated in the 2017 Geneva Opalesque Roundtable.

Trading halted mid-month due to lockdown in Italy

DeltaHedge's NIX Alpha program was up +1.29% in March, +6% YTD. Since its November 2015 inception, it has annualised 4.9%. The Program is based on a proprietary trading method developed by DeltaHedge and seeks to generate absolute returns through investments in just one market: E-mini 5$ Dow Jones Industrial Average Futures at CME.

"The positive result of March marks a new HWM for NixAlpha- for three consecutive months since the beginning of 2020," says the manager's monthly report seen by Opalesque. "As anticipated, the performance is the result of the first two weeks of trading, as we decided to halt trading due to the lockdown that hit the North of Italy. In this extremely volatile environment, the program is well behaving and showing its performance potential and robustness. Trading commenced on the 1st of April, after the overall quarterly review of all models and operative rules."

The Styx Program gained 0.9% in March, +1.8% YTD. It is based upon a proprietary trading method developed by DeltaHedge and seeks to generate absolute return by trading a basket of currency futures on the CME. The program deploys a mix of trend-following strategies, working on the longer term, and a contrarian strategy based on five minutes time frame. As with the Nix Alpha Program, Styx traded during the first two weeks of March and then stopped due to the lockdown in the North of Italy. "The R&D team is working on developing a filter that will hinder trading on days characterized by strong directionality."

DeltaHedge has offices in Edinburgh, Scotland and Pavoda, Italy.

And others…

Shepherd Energy Portfolio x2, managed by Swedish manager Shepherd Energy AB, returned almost +5% (est.) in March and +10.3% YTD. It has annualised 16% since its April 2013 launch and cumulated 172%. It is a managed futures portfolio focused on the Nordic power market that can use leverage and establish long and short positions. It has twice the risk of the Shepherd Energy Portfolio. In March, according to the manager's monthly report seen by Opalesque, Nordic power prices continued to fall mainly due to the persisting mild weather. An expected loss of 5-10% of the Nordic power consumption in the wake of the Corona quarantine has also created pressure in the market. Competition among Nordic hydropower producers has intensified, lowering the spot prices. And the price of gas and coal-fired production has also fallen in the wake of the oil price war and world economic slowdown.

The Canadian manager Lakeroad Asset Management inc. reported positive return in all of its strategies so far this year. Its flagship fund Total Return Long/Short Quant & AI Strategy is up 5.3% YTD at the end of March.

"Our investment approach combines proprietary quantitative and machine learning (AI) strategies and signals to assess market risks every single day" Jonathan Lehoux, founder and CIO, told Opalesque. "The success of the strategy is that we focus on risks, not potential return. Once we understand the risks in the financial markets, our team uses a tactical approach by adjusting leverage on core ETF long and short positions". The strategy produced a net annualised return of 13.1% since inception in 2012 and a net annualised alpha of 11.2% versus the S&P 500 Index.

Exane Asset Management, a fund manager based in Paris and funded in 2001, reported that its Exane Care fund is up 0.50% YTD. It has returned 4.2% since its mid-2017 inception. Exane Care is a UCITS compliant fund targeting absolute performance based on a dynamic long/short equity strategy with a directional bias. Its investment universe is focused on the healthcare sector (pharmaceuticals, biotechnology, medical technology...), in Europe and the U.S. Exane has frozen the sub-fund Exane Integrale Fund of the SICAV Exane Funds 1, citing difficulties in the valuation of a number of derivatives instruments traded OTC held within the fund.

Alloy US Long/Short, LP returned 4.78% net in March, but was down -3.8% YTD. The fund has annualised 7.7% since its mid-2016 inception, with a 7.8% volatility. New Jersey-based Alloy Investments Advisors makes factor-based, quantitative investments. The fund is a US equity, systematic long/short, market-neutral fund. The strategy is designed to identify persistent mispricing in less-efficient market segments by analysing fundamental and behavioural insights.

Revolution Capital Management is $500M+ short-term systematic manager based in Denver, an all three of its programs have been performing really well in this environment, says head of marketing Timothy Kirk. "Our flagship Alpha program was up +8.59% in March, up +23.64% YTD and up +40.97% over the last twelve months (all net of fees). The Sharpe ratio over the last twelve months is greater than 2.0."

Alpha is a fully-diversified, short- to medium-term program that utilizes a multi-strategy pattern-recognition methodology. It targets a low long-term correlation to trend-following indices. Annual volatility is targeted to 12% based on daily returns. Incepted in June 2007, it has cumulated 166% since and has annualised 8%.

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Disclaimer: This is not investment advice. Opalesque has not verified this information and gives no warranty of accuracy or completeness. Past performance is not indicative of future results. See our Terms & Conditions for more information.

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WEBINARS:

- The Corona Fighters: Meet the asset managers that actually delivered during the melt down

Episode 1: Monday, April 20th, 10 am EST

Opalesque will present several investment managers who will give a succinct presentation on how and why their strategies delivered positive returns and/or protected during the Corona led market meltdown, with Q&A session.

For investors only - register now as seats are limited: www.opalesque.com/webinar/corona/

- COVID-19 Survival Training for Family Businesses
April 15th, 10 am EST
Register: www.opalesque.com/webinar/covid_survival/

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