Risk Management

A Proprietary Approach to Risk Management & Position Size: Futures

Proprietary models look at different volatility measures to judge the risk of each futures market traded. The higher the volatility of each market, the smaller the position needed to achieve the desired level of risk and vice versa. This allows the fund to control risk at the security, sector and portfolio level. One of the many benefits achieved from this method is that no one futures market takes over the portfolio. Both volatility and trend signal are evaluated daily to adjust positions if needed.

In addition to position sizing and risk control, multiple non-correlated asset classes and models are used to spread risk across the portfolio. The benefit extends beyond simply performance to a reduction in overall volatility within the fund. Remember the shortest distance between two points is a straight line, lower volatility and smaller drawdowns mean less recovery time to meet our objectives.

Risk Parity / Risk Budgeting Allocation:

Investors have traditionally looked at investment allocations based on a fixed percentage of assets. However, our research shows that historically, asset allocation based on balancing risk across asset classes has performed more consistently across different economic cycles than traditional fixed capital allocations. The risk parity approach attempts to equalize risk among the asset classes or securities that are being utilized in a portfolio. For example, in a traditional 50% Equity 50% Fixed Income portfolio, equities are accounting for approximately 75% of the risk of the portfolio. Therefore, the equity markets are controlling more of the portfolio risk than the 50% capital allocation.

As of 12/31/14 representing data from the S&P 500 Index and Barclays U.S. Aggregate Total Return Value Unhedged.