AuM: USD 45 million
Strategy: Systematic Managed Futures
Sport: Rock Climbing & Yoga
Food: Fusion Cuisine
Book: The Three Little Pigs
If you could time travel back to day one, when you started your trading program in July 2010 and have 15min with your former self to communicate any lessons you’ve acquired with the intention of saving yourself headaches, what would you tell yourself?
Try to focus on what you do best and what you are passionate about – in our case trading and research – and outsource as many of the other critical functions to professionals in their fields. Nowadays, we heavily rely on professionally hosted cloud computing for our purely systematic fully automated trade execution, the ongoing research process and the monthly re-modelling of the portfolio. If you are good in developing trading models try not to build an operational expertise in running a server park. There is actually a large variety of professional service providers that can support you in running a successful trading house and asset management company offering you and investors comfort that your team can focus on what is most important for the long-term success. So in short – take time to define what you want to do in-house and where you can rely on external professionals.
How do you manage your portfolio?
While our program “SINGULARITY” has its roots in our discretionary prop trading mind-set, it has evolved into a highly reactive, entirely electronic and automated trading program. It is a short-term systematic, trend-based managed futures program built on the personal experiences of out-and-out, self-funded proprietary traders with all the ups and downs, smiles and tears and at times painful lessons learned. While having grown over the years into a highly complex trading program, at the core SINGULARITY has been built on a very straight forward trend trading philosophy, being based on naked market experience, built of simple sometimes trivial trading rules working in concert.
This approach is rooted in our belief that there are multiple return drivers in every market and one significantly increases the likelihood of capturing these drivers by employing a multitude of strategy variations in every market. SINGULARITY therefore employs hundreds of strategy variations in up to 23 markets across all asset classes, each analyzing real-time price data to identify trends and patterns, independently generating buy and sell signals. We have named that effect “intra-market-diversification”.
In a monthly optimization routine an algorithm aims to build “an optimum portfolio” for the next month based on specific lookback periods of past data and systematically selects hundreds of strategy elements out of a universe of currently more than 23,000. This newly built portfolio is then electronically traded throughout the month until the next optimization run. Trading all these strategy variations simultaneously, reduces the dependency on specific market patterns and allows capturing trends in various market cycles across all asset classes.
What is the difference between you and all the other Managed Futures managers out there?
While the managed futures space has become arguably more heterogeneous in the more recent past fueled by easier and cheaper access to technology and services, making opening and running a futures business easier from that point, it remains to be dominated by the very large systematic managers that have accumulated the lion share of the assets flowing into the space. Many of these managers derive from the same school of thoughts and have worked on the same approaches in the same or at least similar companies. Consequently you in fact don’t get as much variety and diversification as one might initially expect. Being proprietary traders we haven’t had any contact to these larger schools of thoughts. All of our ideas have resulted from our daily personal encounter with markets and our objective to take these experiences, filter out the emotional aspect of trading, particularly in times or market tumult and define simple, robust trading rules that are then systematically applied and electronically executed in a fully automated fashion.
How do you generate alpha?
Trading hundreds of strategy variations in concert in different futures markets across all asset classes in a highly reactive automated approach positions SINGULARITY to identify and potentially capture multiple return drivers in every market and quickly benefit from newly developing opportunities. Consequently the combination of “intra-market diversification” with traditional “cross-market diversification” is one key differentiator from many classical managed futures programs and has been a driving factor for the strong risk-adjusted performance since inception – bucking the trend of many managed futures funds since 2009.
You returned over 45% net in the last 12 months and are up by more than 25% YTD in a year when the Managed Futures Space seems to struggle again. How did you do that?
For one thing the market environment has certainly become more beneficial for our way of trading. SINGULARITY loves directionality in a generally more volatile environment. In contrast it suffers from sideward moving markets particularly if multiple markets across several asset classes are concerned. Since mid-2014 we have seen a de-correlation of markets in a diverging market environment across Asia, Europe and the USA, offering us alternating opportunities in light of increased volatility. For example the corrections in equities in autumn 2014 and 2015 provided multiple opportunities for a highly reactive program and we clearly benefited from that.
What does your risk management look like?
The risk management is deeply imbedded in the entire system architecture. It takes place offline, where the monthly adaptive allocation process aims to build an efficient portfolio within strict downside risk criteria, by selecting and de-selecting hundreds of strategy variations in a Sortino optimization. And it takes place online within our productive trading environment, when every single one of the hundreds of trading agents can only act within its very strict, clearly defined risk framework. Employing all of them in concerts builds a collective risk management system. As a consequence we do actually focus our daily attention on operational risks, which are monitored real-time with multiple layers of automated alert systems.