STRADIVARI Technical Perspective,
„STP“, is a free monthly research note with views
and ideas on strategic Hedge Funds allocation.
While Quantitative and Technical Analysis are
common tools for traders and investment
managers, we believe that it could be very
interesting to apply these tools to strategic Hedge
Funds allocation in order to have an assessment
from a different analytical point of view.
The complete universe of charts we are analyzing
can be found in our free monthly chartbooks,
showing how single hedge fund strategies have
behaved in the past, with historical volatility,
performance, Sharpe ratios, relative performance
& correlation versus equities, bonds, commodities
and global hedge funds index.
STRADIVARI’s Technical Perspective only covers
the most interesting and rewarding charts from
our view.
It is of critical importance to understand that our
approach and model portfolio is driven ex-
clusively by quantitative and technical analysis.
About STRADIVARI Advisors S.A. STRADIVARI Advisors S.A. is a consulting firm
specialized on marketing Alternative Investments
to the German and French speaking investors, with
a particular focus on hedge funds and fund of
hedge funds.
We also support alternative asset managers
improving their communication strategies,
creating new brand identities and developing as
well as implementing effective new marketing
strategies to differentiate from their competitors.
Régis Weiler
+352 691 256 256
Uwe Truppel
+352 691 257 257
Research can be downloaded:
www.stradivari-cm.com
STRADIVARI TECHNICAL PERSPECTIVE
« technical driven ideas on
strategical Hedge Fund allocation »
JANUARY 2010
STRADIVARI TECHNICALtechnical driven ideas on strategical Hedge Funds allocation
January 2010
STRADIVARI Advisors S.A. Régis Weiler +352 691 256 256 [email protected]
Uwe Truppel +352 691 257 257 [email protected]
Market Comments: 2009 was a very interesting year in many aspects:
performance, industry trends , fraud, legal
environment, liquidity, assets under management.
Looking back at all these aspects, we think that the
industry has successfully gone through a difficult but
necessary purification process that will provide a
robust base for future developments.
We noted with interest that 2009, in terms of
performance, has been symmetrically opposed to
2008. Strategies that were positive in 2008 were
negative in 2009, and vice versa.
Managers are also surfing on the trend of regulation
and there are already a lot of strategies available as
UCITS 3: more than 75% of the managers are
considering launching their strategies as UCITS 3.
Combined with lower entry levels, this builds a strong
foundation of an inevitable „democratisation“
process that is needed for the industry to find new
sources of capital across all types of asset allocators.
Regrettably, frauds of different nature and size came
also to light in 2009 and gave a feeling of „déjà vu“
investors. While one could have avoided some of
them with a better operational due diligence process,
investors can hardly be blamed when a fraud is about
insider trading.
Liquidity terms are improving: almost 2/3 of the fund
that had liquidity issues have now returne
standard liquidity: 5% (or USD 70 bn) of the USD 1.5
trn total estimated current AUM have not returned to
standard liquidity.
We remain convinced that the ability and flexibility of
the alternative investments industry to react and
adapt to new market environment and investors
demand is one of its major asset.
Outlook: It is too early to appraise the consequences of the
recent Obama’s proposal, but it gives a good idea
about the kind of unexpected external factors that
could impact the hedge fund industry in 2010.
We expect significant inflows as strong performance
is generally followed by more risk appetite, but we
STRADIVARI TECHNICAL PERSPECTIVE: technical driven ideas on strategical Hedge Funds allocation
cm.com
cm.com
ar in many aspects:
, fraud, legal
environment, liquidity, assets under management.
Looking back at all these aspects, we think that the
industry has successfully gone through a difficult but
will provide a
We noted with interest that 2009, in terms of
been symmetrically opposed to
2008. Strategies that were positive in 2008 were
on the trend of regulation
and there are already a lot of strategies available as
UCITS 3: more than 75% of the managers are
considering launching their strategies as UCITS 3.
Combined with lower entry levels, this builds a strong
ble „democratisation“
process that is needed for the industry to find new
sources of capital across all types of asset allocators.
, frauds of different nature and size came
n 2009 and gave a feeling of „déjà vu“ to
le one could have avoided some of
them with a better operational due diligence process,
investors can hardly be blamed when a fraud is about
Liquidity terms are improving: almost 2/3 of the fund
that had liquidity issues have now returned to
: 5% (or USD 70 bn) of the USD 1.5
trn total estimated current AUM have not returned to
We remain convinced that the ability and flexibility of
the alternative investments industry to react and
environment and investors
It is too early to appraise the consequences of the
recent Obama’s proposal, but it gives a good idea
about the kind of unexpected external factors that
stry in 2010.
We expect significant inflows as strong performance
is generally followed by more risk appetite, but we
remain very cautious on the economic front and
therefore equity markets.
We believe that Event Driven strategies, especially
Special Situations and Distressed Securities will offer
the best chances for the coming months
Our Allocation: summary-3 -2 -1
Equity Market Neutral
Distressed Securities
Merger Arbitrage
Special Situations
Convertible Arbitrage
Fixed Income Arbitrage
Other Arbitrage
Statistical Arbitrage
Growth
Opportunistic
Short Selling
Value
Managed Futures
Global Macro
Market Timing
Emerging Markets
Fixed Income
Multi-Strategy
Chart 1: Percentage of strategies with positive
performance: 3-months average
(based on Greenwich Alternative Investments Indices)
0%
20%
40%
60%
80%
100%
The current percentage of strategi
performance is currently at 72%
It is worth to note that December
consecutive month staying
This has only happened four times before
beginning of the index in 1995.
remain very cautious on the economic front and
We believe that Event Driven strategies, especially
ations and Distressed Securities will offer
the best chances for the coming months
summary 0 1 2 3
Chart 1: Percentage of strategies with positive
months average
Greenwich Alternative Investments Indices)
The current percentage of strategies with a positive
tly at 72% .
December was the eighth
consecutive month staying above its average (70%)
This has only happened four times before since the
beginning of the index in 1995.
STRADIVARI TECHNICAL PERSPECTIVE: technical driven ideas on strategical Hedge Funds allocation
January 2010
STRADIVARI Advisors S.A. Régis Weiler +352 691 256 256 [email protected]
Uwe Truppel +352 691 257 257 [email protected]
Global Hedge Funds and Balanced
Portfolio Analysis:
The 12-months rolling performance of a balanced
Bond–Equity–Commodity portfolio (17.27%), is
almost 2% below the performance of a portfolio
invested in Global Hedge Funds (19.44%).(Chart 2)
The 12-Months rolling volatility of a balanced
Bond–Equity–Commodity portfolio (11.3%) is still
almost 2 times higher than a portfolio invested in
Global Hedge Funds (5.83%) (Chart 4).
Chart 2: 12-months rolling returns for Greenwich Global
HF Index (P4) and a Bond-Equity-Commodity portfolio
weighted 45%/45%/10% (P1)
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
Jan
-95
Jan
-96
Jan
-97
Jan
-98
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Jan
-07
Jan
-08
Jan
-09
P1 P4
Chart 3: Total return for Greenwich Global HF Index (P4)
and a Bond-Equity-Commodity portfolio weighted
45%/45%/10% (P1)
0%
50%
100%
150%
200%
250%
300%
350%
400%
450% P1 P4
Chart 4: 12-months rolling volatility for Greenwich Global
HF Index (P4) and a Bond-Equity-Commodity portfolio
weighted 45%/45%/10% (P1)
0%
5%
10%
15%
20%
25% P1 P4
Chart 5: High Water Mark (green line) and Total Return
(red line) for Greenwich Global HF Index
0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
Chart 6: High Water Mark (green line) and Total Return
(blue line) for a Bond-Equity-Commodity portfolio (P1)
0%
20%
40%
60%
80%
100%
120%
140%
160%
It is worth noting that a portfolio invested in Global
Hedge Funds has reached its high water mark
again in December 2009. The drawdown period
started in May 2008, touched a low in February
2009 and lasted 19 months. It took 10 months to
reach a new high after the low (Chart 5).
A balanced Bond–Equity–Commodity portfolio
should produce a performance of 21% in order to
STRADIVARI TECHNICAL PERSPECTIVE: technical driven ideas on strategical Hedge Funds allocation
January 2010
STRADIVARI Advisors S.A. Régis Weiler +352 691 256 256 [email protected]
Uwe Truppel +352 691 257 257 [email protected]
reach its old high water mark. The drawdown
period started in October 2007, touched a low in
February 2009 and is on its way to new highs for
27 months now. (Chart 6)
Chart 7: 12-months rolling returns for a Bond-Equity- HF
portfolio weighted 45%-35%-20% (P3) and a Bond-Equity-
Commodity portfolio weighted 45%/45%/10% (P1)
-40%
-30%
-20%
-10%
0%
10%
20%
30%
Jan
-95
Jan
-96
Jan
-97
Jan
-98
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Jan
-07
Jan
-08
Jan
-09
P3 P1
Chart 8: Total return for a Bond-Equity- HF portfolio 45%-
35%-20% (P3) and a Bond-Equity-Commodity portfolio
weighted 45%/45%/10% (P1)
0%
50%
100%
150%
200%
250% P3 P1
Chart 9: Volatility since Inception of a Bond-Equity- HF
portfolio 45%-35%-20% (P3) and a Bond-Equity-
Commodity portfolio weighted 45%/45%/10% (P1)
0%
1%
2%
3%
4%
5%
6%
7%
8%
9% P3 P1
Charts 7, 8, 9 show a comparison of two different
balanced portfolios:
P1 being invested in Bond-Equity-Commodity
45%-45%-10% (Red Line) and P3 being invested
in Bond-Equity-HF 45%-35%-20%.
On Chart 7, one can see that the 12-months rolling
return structure seems to be very similar, with a
small advantage for P3.
On Chart 8, one can realize the effect of this small
advantage when it is compounded since 1995.
The performance of P3 is 180% while P1 is at
124%.
Chart 9 shows the volatility since inception of both
portfolios.
P1: 8,02%
P3: 6,97%
All these numbers show that including hedge funds
in an allocation mix can add a lot of value (more
performance, less volatility), especially on a mid to
long term basis.
STRADIVARI TECHNICAL PERSPECTIVE: technical driven ideas on strategical Hedge Funds allocation
January 2010
STRADIVARI Advisors S.A. Régis Weiler +352 691 256 256 [email protected]
Uwe Truppel +352 691 257 257 [email protected]
STRADIVARI HEAT MAP
The goal of our heat map is to provide a visual and
easy to understand map showing the current state
of different technical and quantitative factors.
Green is good, red is bad.
Explanations of factors:
Distance to HWM (high water mark):
Absolute performance in % that the strategy has to
realize to reach the precedent high.
High distance to HWM is bad.
0 means that the strategy is currently at its all time
high.
Table 1: STRADIVARI Heat Map (Part 1)
Expected Recovery Period:
This number gives an idea about the average time
in years needed to reach the precedent high. It is
based on the annualized performance of each
strategy since 1995.
High Expected Recovery period is bad.
No number when annualized performance since
1995 has been negative.
Technicals relative to Global Hedge Funds:
Approach based on pure technical analysis.
Values range from -3 to 3.
“3” implies a very good technical situation.
“-3” implies a very bad technical situation.
Per f .
D ec 0 9
Pe r f .
1Y ea r
A nnua l i z ed
P e r f . s i nce
I ncep t i o n
P er f . r e l .
t o G lo b a l
HF Ind ex
C o r r . t o
G lo b a l HF
I nd ex
C o r r . t o
M SC I
W o r ld
C o r r . t o
G lo b a l
B o nd
C o r r . t o
C R B
Ind ex
T ech. r e l .
t o G lo b a l
HF
G lo ba l H e dge F und Inde x 1,0% 19,4% 11,2% 0,0% 1,00 0,84 0,44 0,75 0
M a rk e t N e ut ra l G ro up 1,7% 18,4% 10,6% -1,1% 0,97 0,68 0,20 0,63 1
E qu it y M a rk e t N e ut ra l 0,6% 3,6% 10,5% -15,8% 0,86 0,31 0,03 0,48 0
E v e nt D r iv e n ( S ub-G ro up) 3,0% 26,4% 11,8% 6,9% 0,95 0,69 0,17 0,59 -1
D is t re s s e d S e c urit ie s 3,0% 24,8% 11,2% 5,4% 0,94 0,42 0,04 0,48 2
M e rge r A rb it ra ge 1,0% 8,5% 7,9% -11,0% 0,78 0,27 0,10 0,14 0
S pe c ia l S it ua t io ns 4,2% 33,4% 12,2% 13,9% 0,97 0,76 0,12 0,59 3
A rb it ra ge ( S ub-G ro up ) 1,3% 22,1% 9,7% 2,7% 0,93 0,69 0,29 0,62 1
C o nv e rt ib le A rb it ra ge 2,2% 49,4% 9,4% 30,0% 0,79 0,50 0,21 0,42 0
F ixe d Inc o m e A rb it ra ge 1,1% 22,3% 9,7% 2,8% 0,73 0,70 0,47 0,63 -1
O the r A rb it ra ge 0,5% 15,8% 6,7% -3,6% 0,89 0,65 0,33 0,55 0
S t a t is t ic a l A rb it ra ge 0,8% 5,6% 8,2% -13,9% 0,83 0,27 0,10 0,14 0
Lo ng/ S ho rt E qu it y G ro up 2,3% 23,4% 12,6% 4,0% 0,98 0,90 0,37 0,69 -1
G ro wt h 3,3% 29,0% 12,4% 9,5% 0,96 0,89 0,38 0,68 1
O ppo rt un is t ic 1,7% 16,8% 13,8% -2,7% 0,98 0,81 0,29 0,66 -1
S ho rt S e l ling -1,3% -14,9% -2,0% -34,3% -0,47 -0,83 -0,47 -0,17 0
V a lue 2,2% 24,9% 13,5% 5,4% 0,96 0,91 0,37 0,67 1
D ire c t io na l T ra d ing G ro up -2,0% 2,5% 10,5% -16,9% 0,77 0,31 0,50 0,49 1
F ut u re s -2,7% -1,0% 11,4% -20,4% 0,61 0,12 0,43 0,30 -1
M a c ro -0,4% 9,3% 7,2% -10,1% 0,94 0,66 0,45 0,80 0
M a rk e t T im ing 0,5% 16,6% 10,7% -2,9% 0,73 0,60 0,40 0,54 0
S pe c ia lt y S t ra t e g ie s G ro up 1,6% 31,8% 9,1% 12,3% 0,99 0,82 0,41 0,82 -1
Em e rg ing M a rk e t s 2,1% 42,5% 9,3% 23,1% 0,97 0,84 0,44 0,82 1
F ixe d Inc o m e ( inc l. A B L) 2,3% 25,7% 7,6% 6,3% 0,69 0,61 0,07 0,59 2
M ult i- S t ra t e gy 0,1% 17,1% 11,4% -2,3% 0,97 0,39 0,29 0,53 -1
Glo bal B o nd Index -1,6% 5,9% 6,8% -13,5% -0,13 0,60 1,00 0,35 1
M SCI Wo rld 1,7% 26,8% 4,4% 7,4% 0,41 1,00 0,60 0,64 0
CRB Index 2,2% 23,3% 1,1% 3,9% 0,43 0,64 0,35 1,00 0
STRADIVARI TECHNICAL PERSPECTIVE: technical driven ideas on strategical Hedge Funds allocation
January 2010
STRADIVARI Advisors S.A. Régis Weiler +352 691 256 256 [email protected]
Uwe Truppel +352 691 257 257 [email protected]
Performance 1 Year
2009 is diametrically opposed to 2008. Whereas
2008 was completely in the red with most strategies
showing double digit negative performance numbers
except for Short Selling and Managed Futures, 2009 is
except for the same strategies in green territory.
Once again it proves true, that the winners of the
past are not automatically the winners of today.
Although an extreme situation as in 2008/2009 is
rather unusual. Nevertheless we have seen strong
rebounds in the performance of last year’s losers.
Convertible Arbitrage losing 38% and Emerging
Markets losing 36% last year gained 49% respectively
42% in 2009. On the other side last year’s top
Table 2: STRADIVARI Heat Map (Part 2)
performer “Short Selling “ with a positive
performance of 30% lost 15% in 09. On average all
hedge fund strategies gained nearly 20%, more than
offsetting the negative numbers of 2008.
Correlation Numbers
Compared to the end of 2008, correlation numbers to
the MSCI have moved to more common levels.
Except for the strategies with an equity long bias, all
HF-strategies have on average a correlation of 0.48 to
the MSCI World. The average correlation against
Bonds and Commodities is 0.23 respectively 0.49,
again showing the good diversification effect of
hedge funds in a portfolio context.
V o lat i l i t y
2 4
M o nt hs
V o lat i l i t y
Incep t io n
D ownsid e
D eviat io n
2 4 M o nt hs
D ownsid e
D eviat io n
Incep t io n
Skew -
ness
Kur t o -
sis
M aximum
D rawD own
D ist ance
t o HW M
Exp ect ed
R eco very
Per io d
G lo ba l H edge F und Index 9,2% 7,4% 7,8% 4,6% -0,08 3,04 17,2% 0,0% 0,0
M a rke t N eut ra l G ro up 7,4% 4,5% 6,4% 2,9% -1,05 5,79 13,2% 0,0% 0,0
Equit y M a rke t N eut ra l 3,8% 4,2% 3,9% 2,0% 0,82 4,47 6,6% 3,3% 0,3
Event D riv en (S ub-G ro up) 9,4% 6,3% 7,7% 4,1% -0,79 4,31 17,1% 0,0% 0,0
D is t re s s ed Securit ies 10,8% 5,9% 9,3% 4,1% -1,29 5,49 24,3% 5,5% 0,5
M e rge r A rbit ra ge 4,4% 3,6% 4,1% 2,6% -1,65 6,01 5,5% 0,0% 0,0
Spec ia l S it ua t io ns 10,7% 7,3% 8,1% 4,6% -0,54 3,73 17,6% 0,0% 0,0
A rbit ra ge (Sub-G ro up) 9,0% 4,3% 7,7% 3,1% -2,64 17,47 14,8% 0,0% 0,0
C o nve rt ible A rbit ra ge 22,0% 8,6% 19,4% 7,4% -5,78 45,48 38,3% 6,7% 0,7
F ixed Inco m e A rbit ra ge 8,8% 4,3% 7,4% 3,5% -4,28 26,67 13,6% 0,0% 0,0
O the r A rbit ra ge 6,1% 3,7% 4,8% 2,8% -2,39 10,20 8,5% 0,0% 0,0
S ta t is t ic a l A rbit ra ge 3,9% 4,6% 3,3% 2,3% 1,47 5,26 4,6% 0,0% 0,0
Lo ng/ Sho rt E quit y G ro up 12,0% 9,4% 10,3% 5,9% 0,03 2,56 23,9% 3,9% 0,3
G ro wth 15,2% 14,6% 13,3% 9,2% 0,48 2,58 34,8% 8,3% 0,7
Oppo rtunis t ic 9,4% 9,5% 8,5% 5,2% 1,42 9,33 17,8% 3,0% 0,2
Sho rt S e lling 14,0% 20,0% 8,4% 15,5% 0,10 3,27 60,4% 39,1% Perf.neg.
Va lue 12,8% 10,3% 11,0% 6,8% -0,48 1,60 25,4% 4,3% 0,3
D irec t io na l T rading G ro up 6,1% 7,4% 3,7% 4,2% 0,26 -0,32 8,3% 2,0% 0,2
F uture s 8,5% 11,1% 4,7% 6,5% 0,31 0,09 12,3% 2,8% 0,3
M acro 5,8% 8,6% 4,5% 5,6% 0,40 3,43 20,3% 0,4% 0,1
M a rke t T im ing 8,0% 8,2% 5,6% 4,4% 0,99 3,44 12,3% 0,0% 0,0
Spec ia lt y S t ra t e gie s G ro up 13,7% 12,0% 11,4% 8,8% -0,75 4,00 34,1% 2,3% 0,3
Emerging M a rk e ts 19,3% 16,8% 16,0% 12,3% -0,35 3,08 47,5% 9,4% 1,0
F ixed Inco me ( inc l. A B L) 7,6% 4,5% 5,8% 3,4% -2,24 10,80 14,3% 0,0% 0,0
M ult i-S t ra t egy 7,8% 7,5% 6,6% 4,9% -0,47 1,95 13,8% 0,0% 0,0
Glo bal B o nd Index 4,8% 3,8% 3,1% 2,5% -0,21 1,05 3,8% 1,6% 0,2
M SCI Wo rld 26,7% 15,9% 23,4% 12,7% -1,05 2,07 55,6% 44,8% 8,6
CRB Index 29,8% 14,3% 25,1% 11,6% -1,14 5,77 54,8% 65,4% 45,2
STRADIVARI TECHNICAL PERSPECTIVE: technical driven ideas on strategical Hedge Funds allocation
January 2010
STRADIVARI Advisors S.A. Régis Weiler +352 691 256 256 [email protected]
Uwe Truppel +352 691 257 257 [email protected]
Volatility and Downside Deviation
As expected Volatility and Downside Deviation
numbers have decreased after the turbulences in
2008. As a lot of HF-strategies did not have any
negative month in 2009, what means zero Downside
Deviation, we have increased the period to compute
this numbers from 12 to 24 months. This will give
more realistic and statistically significant results with
less variation.
Distance to High Water Mark
More than 90% of all strategies are near or have
reached their High Water Marks. Even those
strategies that have been away more than 60% from
Table 3: STRADIVARI Heat Map (Part 3)
their tops are within reach and all expected recovery
periods are less than one year. Nevertheless, as
expected, a lot of funds have gone out of business
due to the fact that they would not be able to charge
performance fees for a long time. Currently the
threat from this side, which existed a year ago has
disappeared. Once again hedge funds have shown
their clear superiority over equities and commodities,
whose High Water Marks are still 45% respectively
65% away from current levels. Hedge Funds are able
to recover much faster than plain vanilla long only
funds due to their higher flexibility and shorter
reaction time.
Sharp e
R at io 2 4
M o nt hs
Sharp e
R a t io
Incep t io n
So r t ino
R a t io 2 4
M o nt hs
So r t i no
R a t io
Incep t io n
Omeg a
2 4
M o nt hs
Omeg a
Incep t io n
Kap p a3
2 4
M o nt hs
Kap p a3
Incep t io n
G lo ba l H e dge F und Inde x 0,32 1,04 -0,61 1,25 2,34 6,34 -0,46 0,81
M a rk e t N e ut ra l G ro up 0,63 1,59 -0,50 1,83 2,42 8,96 -0,36 1,06
Equ it y M a rk e t N e ut ra l 0,05 1,66 -1,41 2,49 1,05 9,34 -1,06 1,64
Ev e nt D riv e n (S ub-G ro up) 0,77 1,31 -0,33 1,53 2,83 7,47 -0,25 0,94
D is t re s s e d S e c ur it ie s -0,16 1,29 -0,73 1,41 2,13 7,41 -0,55 0,85
M e rge r A rbit ra ge 1,94 1,21 -0,45 1,05 2,45 6,42 -0,32 0,63
S pe c ia l S it ua t io ns 1,27 1,19 0,02 1,44 3,50 7,00 0,01 0,90
A rbit ra ge (S ub-G ro up) 0,70 1,43 -0,26 1,43 2,81 8,55 -0,18 0,74
C o nv e rt ib le A rb it ra ge -0,19 0,69 -0,36 0,56 2,52 5,88 -0,24 0,28
F ixe d Inc o m e A rbit ra ge 0,79 1,41 -0,18 1,25 3,02 9,29 -0,12 0,65
O the r A rbit ra ge 1,43 0,86 -0,20 0,59 3,04 5,05 -0,13 0,35
S ta t is t ic a l A rb it ra ge 1,91 1,01 -0,60 1,28 2,38 6,09 -0,44 0,91
Lo ng/ S ho rt E quit y G ro up 0,06 0,97 -0,65 1,19 2,29 6,06 -0,50 0,81
G ro wth -0,10 0,61 -0,67 0,74 2,27 4,98 -0,50 0,52
Oppo rt unis t ic 0,29 1,09 -0,69 1,56 2,23 6,95 -0,52 1,05
Sho rt S e ll ing 0,49 -0,28 0,00 -0,45 3,46 2,62 0,00 -0,31
Va lue -0,02 0,97 -0,64 1,16 2,29 6,11 -0,48 0,77
D ire c t io na l T ra d ing G ro up 1,81 0,93 0,19 1,21 3,78 5,67 0,15 0,92
F uture s 1,88 0,71 0,78 0,91 4,75 5,13 0,62 0,68
M ac ro 0,87 0,42 -0,64 0,37 2,39 4,22 -0,48 0,25
M a rk e t T im ing 1,59 0,87 0,06 1,19 3,56 5,82 0,04 0,85
Spe c ia lt y S t ra t e g ie s G ro up 0,11 0,47 -0,53 0,44 2,44 4,49 -0,39 0,28
Em e rging M a rk e t s -0,14 0,35 -0,59 0,33 2,37 4,20 -0,44 0,22
F ixe d Inc o m e ( inc l. A B L) 1,40 0,89 0,06 0,70 3,60 5,45 0,04 0,41
M ult i- S t ra t e gy 0,60 1,04 -0,52 1,21 2,41 6,26 -0,38 0,79
Glo bal B o nd Index 1,91 0,86 0,19 0,67 3,82 4,83 0,15 0,48
M SCI Wo rld -1,25 0,06 -0,88 -0,04 1,92 3,37 -0,67 -0,03
CRB Index -1,33 -0,17 -0,69 -0,32 2,18 2,79 -0,51 -0,20
STRADIVARI TECHNICAL PERSPECTIVE: technical driven ideas on strategical Hedge Funds allocation
January 2010
STRADIVARI Advisors S.A. Régis Weiler +352 691 256 256 [email protected]
Uwe Truppel +352 691 257 257 [email protected]
Performance Indicators
As described earlier, we have changed the
computation periods from 12 to 24 months, because
there were too many strategies with no or very small
Downside Deviations based on a 12 month horizon.
This would have lead to not defined or huge Sortino-,
Omega- and Kappa3-Ratios. With ratios based on a
24 months period, numbers are less volatile.
Anyway, short term performance indicators have
improved across the board, while long term
indicators have not changed that much.
Table 4: Strategy-Rankings based on Performance
Indicators since inception
Sharpe Sort ino Omega Kappa3
Global H edge Fund Index 11 9 10 10
M arket Neutra l Group 2 2 3 2
Equity M arket Neutral 1 1 1 1
Event D riven (Sub-Group) 5 4 5 4
D istressed Securit ies 6 7 6 8
M erger A rbit rage 7 16 9 17
Special Situat io ns 8 5 7 7
A rbit rage (Sub-Group) 3 6 4 14
Convertible A rbit rage 21 22 15 23
F ixed Income A rbit rage 4 10 2 16
Other A rbit rage 19 21 20 21
Stat is tica l A rbit rage 12 8 13 6
Long/Sho rt Equity Group 14 14 14 11
Growth 22 18 21 18
Oppo rtunistic 9 3 8 3
Sho rt Selling 28 28 28 28
Value 13 15 12 13
D irectio nal T rading Group 15 11 17 5
Futures 20 17 19 15
M acro 24 24 24 24
M arket T iming 17 13 16 9
Specia lty Strategies Group 23 23 23 22
Emerging M arkets 25 25 25 25
F ixed Income (incl. ABL) 16 19 18 20
M ult i-Strategy 10 12 11 12
Global Bond Index 18 20 22 19
MSCI World 26 26 26 26
CRB Index 27 27 27 27
Strategy Rankings
Despite the relatively poor performance in 2009
Equity Market Neutral is still the dominating strategy
across all performance indicators on a long term
basis, followed by the whole Event Driven Group,
Opportunistic and Fixed Income Arbitrage.
All strategies with a high correlation to long equities,
the MSCI World itself and the CRB Index are still
lagging behind. Due to the very high volatility
respectively downside deviation of all these
strategies, it will hardly be possible to ever climb into
the highest quartile of the rankings.
Table 5: Strategy-Rankings based on 24 months
Performance Indicators
Sharp e So r t ino Omeg a Kap p a3
G lo ba l H edge F und Index 17 19 20 19
M ark e t N eut ra l G ro up 14 14 15 14
Equit y M a rk e t N eut ra l 2 1 28 28 28
Ev ent D riv en (Sub-G ro up) 12 11 10 12
D is t re ss ed S ecurit ie s 2 5 26 26 26
M e rge r A rbit ra ge 1 13 13 13
Spec ia l S it ua t io ns 9 6 6 6
A rbit rage (S ub-G ro up) 13 10 11 10
C o nv e rt ib le A rbit ra ge 2 6 12 12 11
F ixed Inco m e A rbit ra ge 11 8 9 8
O the r A rbit ra ge 7 9 8 9
S ta t is t ic a l A rbit ra ge 2 18 18 18
Lo ng/ Sho rt E quit y G ro up 2 0 22 22 22
G ro wth 2 3 23 23 23
Oppo rtunis t ic 18 24 24 25
Sho rt S e lling 16 7 7 7
Va lue 2 2 21 21 20
D ire c t io na l T ra ding G ro up 5 2 3 2
F uture s 4 1 1 1
M ac ro 10 20 17 21
M a rk e t T im ing 6 5 5 5
Spec ia lt y S t ra t e gie s G ro up 19 16 14 16
Eme rging M a rk e ts 2 4 17 19 17
F ixe d Inc o m e ( inc l. A B L) 8 4 4 4
M ult i-S t ra t e gy 15 15 16 15
Global B ond Index 3 3 2 3
M SCI Wo rld 2 7 27 27 27
CRB Index 2 8 25 25 24
STRADIVARI TECHNICAL PERSPECTIVE: technical driven ideas on strategical Hedge Funds allocation
January 2010
STRADIVARI Advisors S.A. Régis Weiler +352 691 256 256 [email protected]
Uwe Truppel +352 691 257 257 [email protected]
On a shorter time horizon the picture has changed
compared to 2008. If we had still used 12 months
numbers, it would have been the complete opposite
to the year before. On a 24 months basis, last year’s
favorite “Short Selling” has logically lost this position,
whereas Managed Futures are still in front, despite
the disappointing one percent loss in 2009. The tail of
the ranking is again taken by worldwide equities and
commodities. Surprisingly a pure bond investment is
in second place directly behind the best hedge fund
strategy.
Although there is still a high rank-correlation
between the different indicators, Merger- and
Statistical Arbitrage are worth to note. Both
strategies in front based on the Sharpe-Ratio (1 resp.
2) are in the last quartile (13 resp. 18) based on the
indicators that are calculated from the downside
deviation. Simple explanation is, that concerning the
Sharpe-ratio both strategies profit from their
extremely low volatility, whereas the downside
deviation is not reduced that much compared to all
other strategies. With the result, that those strategies
with high volatility but few negative months are able
to increase their rankings and strategies with low
volatility and few negative months fall back.
STRATEGIC ALLOCATION
From a technical point of view our main
overweightings are Distressed Securities and still
Fixed Income and Special Situations.
After the breakout of the symmetric triangle in the
mid of last year, Special Situations had a nice run
against the Global HF Index. At the moment the end
of this trend is not foreseeable.
After the buy-signal generated exactly 1 year ago
Fixed Income is slightly outperforming the market,
unfortunately without gaining momentum. The
strategy stays on our watch list for a small
downgrade.
We have upgraded Distressed Securities as the
strategy seems to be on the way for new highs
against the Global HF Index after correcting nearly
half of the former uptrend.
At the moment we have no major underweighting’s
but have further downgraded Global Macro to
neutral, as the correction of the uptrend takes
longer than expected.
Managed Futures and Equity Market Neutral, the
strategies we like most from a long term portfolio
view, are either in a downtrend or in a correction
mode against the Global HF-market.
Table 6: Recommended Allocation
Benchmark
W eight
St rad ivar i
Rat ing
St rad ivar i
W eight ing
M arket N eutral Group 22,90% 25,8%
Equity M arket N eutral 5 ,70% o 5,7%
Event D riven (Sub-Group) 9 ,00% 12,9%
D istressed Securit ies 2,90% ++ 3,9%
M erger A rbitrage 1,30% o 1,3%
Special Situat io ns 4,80% +++ 8,1%
A rbitrage (Sub-Group) 8 ,20% 7,1%
Convert ible A rbitrage 1,50% o 1,5%
F ixed Income A rbitrage 2,90% - 1,8%
Other A rbitrage 2,60% o 2,6%
Stat ist ical A rbitrage 1,20% o 1,2%
Long/ Sho rt Equity Group 38,50% 37,8%
Growth 8,70% + 9,4%
Oppo rtunist ic 8,10% - 4,9%
Sho rt Selling 0 ,50% o 0,6%
Value 21,20% + 22,9%
D irect io nal T rading Group 18,50% 14,3%
M anaged F utures 11,40% - 7,2%
Global M acro 6,50% o 6,5%
M arket T iming 0 ,60% o 0,6%
Specia lty Strategies Group 20,40% 21,7%
Emerging M arkets 11,70% + 12,6%
F ixed Income 2,50% ++ 4,5%
M ult i-Strategy 6 ,20% - 4,7%
100% 100,0%
The recommended allocation is based on the weighting of each
strategy within the "Greenwich Global Hedge Fund Index". Each
strategy is analyzed and rated on a technical basis. These Ratings
reach from “+++” Strong Overweight to “---“ Strong Underweight.
Weightings for our model-portfolio are calculated based on our
technical ratings, correlations to the Global HF Index and current
volatilities.
STRADIVARI TECHNICAL PERSPECTIVE: technical driven ideas on strategical Hedge Funds allocation
January 2010
STRADIVARI Advisors S.A. Régis Weiler +352 691 256 256 [email protected]
Uwe Truppel +352 691 257 257 [email protected]
Except for the Directional Trading Group, which
was the only group with a positive performance in
2008, we have seen a strong recovery in all
strategies. The stronger the underperformance in
08, the better the performance in 09. We have to
admit, that we have underestimated the trend in
equity markets, why we did not raise the ratings as
aggressively as has been desirable. Nevertheless
we had a small overweight in strategies with an
equity long bias like Emerging Markets, Value and
Growth. For the next months we are still cautious,
in anticipation of a stock market correction. If this
will happen the Directional Trading Group with
Managed Futures and the Equity Market Neutral
strategy will be on our watch-list as strong
overweight’s.
Chart 10: Strategy Allocation
0% 5% 10% 15% 20% 25%
Equity Market Neutral
Distressed Securities
Merger Arbitrage
Special Situations
Convertible Arbitrage
Fixed Income Arbitrage
Other Arbitrage
Statistical Arbitrage
Growth
Opportunistic
Short Selling
Value
Managed Futures
Global Macro
Market Timing
Emerging Markets
Fixed Income
Multi-Strategy
BENCHMARK Weight STRADIVARI Weighting
Chart 11: Group Allocation
0% 10% 20% 30% 40% 50%
Market Neutral Group
Event Driven (Sub-Group)
Arbitrage (Sub-Group)
Long/Short Equity Group
Directional Trading Group
Specialty Strategies Group
BENCHMARK Weight STRADIVARI Weighting
Selected Charts from our Chartbooks
Chart 12: Special Situations - relative performance
to Global Hedge Fund Index - MACD
One of our favorites of the past has shown a very
nice outperformance against the Global HF-Index
after the breakout of the symmetric triangle.
Although the chart is a little overbought, the target
should be the old high around 115.
STRADIVARI TECHNICAL PERSPECTIVE: technical driven ideas on strategical Hedge Funds allocation
January 2010
STRADIVARI Advisors S.A. Régis Weiler +352 691 256 256 [email protected]
Uwe Truppel +352 691 257 257 [email protected]
Chart 13: Long-Short-Equity-Group - relative
performance to Global HF- Index – Stochastic
The whole Long-Short-Equity Group, has, after
reversing sharply, broken through the short term
downward trend line and is now heading towards
the 61,8% retracement of the past downtrend and
then to the old high. As this group normally has a
equity long bias with a high correlation to the MSCI
World, this could indicate a potential continuation
of the equity markets rally, at least for some
months.
Chart 14: Value - relative performance to Global HF-
Index – Stochastic
Value, one of the sub-strategies in the Long-Short-
Equity Group and mentioned in one of our last
issues shows the same pattern as the whole group
and is targeting its old high. This is supported by
the strong reversal and the momentum breakout of
the triangle in the 12M rolling performance (Chart
15).
Chart 15: Value - 12Month rolling Performance
Chart 16: Futures – relative performance to Global
HF- Index – Stochastic
Managed Futures as indicated mid last year is
about to reach our target area around the 61%
retracement and the supporting line. This is
supported by a Stochastic-Oscillator, which has
just reached the oversold area and the 12M rolling
performance (Chart 17), that is creating a
bottoming pattern in a zone, where it has reversed
four times before. Any failure to break the support
line in the 12 Month rolling performance should
be followed by a strong rebound.
STRADIVARI TECHNICAL PERSPECTIVE: technical driven ideas on strategical Hedge Funds allocation
January 2010
STRADIVARI Advisors S.A. Régis Weiler +352 691 256 256 [email protected]
Uwe Truppel +352 691 257 257 [email protected]
Chart 17: Futures - 12Month rolling Performance
Chart 18: Perf. MSCI (upper Chart) vs. Relative Perf.
Futures to MSCI (lower Chart)
As we can see that the relative performance of
Managed Futures against the MSCI is nearly
perfectly negative correlated to the absolute
performance of the MSCI, the before mentioned
potential outperformance of Futures could be a
warning signal for global equities.
Chart 19: Multi Strategy - relative performance to
Global Hedge Fund Index - Oscillator
After breaking through the supporting line, shown
in our June issue, Multi-Strategy has now also
broken the upwards trend line with the risk of
falling to the 61.8%-retracement resp. the longer
term uptrend-line.
Chart 20: Distressed Securities – relative
performance to Global HF- Index – Stochastic
The chart exactly bounced at the 50%-retracement
of the up-move beginning in 2000. If the chart is
able to break the resistance at 98.5 which is also
the 61,8% retracement of the downward move, the
next target will be the old high and then the zone
around 108/109.
Chart 21: Income - performance since inception -
Stochastics
As promised, after breaking through its mid-term
down trend line, we have now reached our target at
the upper line of the trend channel with the chart
being strongly overbought. This means, that we
should be a little bit cautious here. Nevertheless the
past has shown, that a situation like this could last for
a very long time.
STRADIVARI TECHNICAL PERSPECTIVE: technical driven ideas on strategical Hedge Funds allocation
January 2010
STRADIVARI Advisors S.A. Régis Weiler +352 691 256 256 [email protected]
Uwe Truppel +352 691 257 257 [email protected]
Chart 22: Income – relative performance to Global
HF- Index – Stochastic
The situation mentioned before, also describes the
risk in the relative chart. The break of the
downward trend was not followed, as expected, by
a strong move with a lot of momentum. Therefore
the chart bears the risk of a correction, what would
match a correction in the absolute performance.
On the other side a dynamic move to further new
highs in the absolute chart could lead to the
momentum we are looking for in the relative
performance.
Chart 23: Hedge Fund Index - performance since
inception
After breaking through the long-term upward
channel and correcting 25% of the move from 1998,
the Global Hedge Fund Index could reenter this
channel and is about to resume its long term upward
trend.
Chart 24: Macro - 12Month rolling Performance
Although our promised scenario came true and the
1 year-performance has increased significantly,
reaching an annualized performance of more than
10%, the relative performance of Global Macro
against the Global HF-Index was very poor.
Chart 25: Relative Perf. Statistical Arb. to Global
Hedge Fund Index (upper Chart) vs. 12M rolling Perf.
Statistical Arbitrage (lower Chart)
In this chart we exemplarily show, that the rolling
12M performance is no good indication for the
relative Performance to the Global HF-Index. Our
expectation that the reversal in the 12M rolling
performance of Statistical Arbitrage and the support
at the 50%-Retracement in the relative chart could
lead to a resuming of the upward-trend did not come
true. Nevertheless it is a good indication regarding
the absolute performance of the strategy.
STRADIVARI TECHNICAL PERSPECTIVE: technical driven ideas on strategical Hedge Funds allocation
January 2010
STRADIVARI Advisors S.A. Régis Weiler +352 691 256 256 [email protected]
Uwe Truppel +352 691 257 257 [email protected]
Chart 26: Perf. MSCI (upper Chart) vs. Correlation
Equity Market Neutral to MSCI (lower Chart)
One of our favorite charts is currently not easy to
interpret. As the correlation between Equity Market
Neutral and the MSCI World does not show a clear
trend at the moment, it is difficult to give a distinct
view. However if the time lag in the turning points of
both charts is still 8-12 months, there should be at
least another 3 month of good equity performance in
front of us.
Important Information
This material is intended for informational
purposes only and should not be construed as an
offer or solicitation for the purchase or sale of any
financial instrument.
The information provided herein reflects current
market practices and is not intended to constitute
legal, tax, or accounting advice; clients should
consult their own advisors on such matters.
The market valuations, terms, and calculations
contained herein are estimates only and are
subject to change without notice.
The views, opinions and strategies described
herein, which are as well subject to change, may
not be suitable for all investors.
The information provided is believed to be reliable,
however the Company does not guarantee its
completeness or accuracy.
The performance data contained herein has been
obtained from fund administrators as well as other
outside sources and, although it is believed to be
accurate, no guarantee of completeness or
accuracy is being made.
Actual figures could be higher or lower subject to
market conditions. Clients should consider the
potential risks and further disclosure information
associated with this investment and the
appropriateness with their financial profile and
objectives.
An investment in an alternative investment carries
substantial risks. The nature and extent of some of
these risks differ from traditional investments in
stocks and bonds. There can be no assurance that
the advice or information provided above will lead
to superior performance.
In particular, the performance of an alternative
investment may vary substantially over time.
Investors bear the risk of losing all or part of their
investment and thus should carefully consider the
appropriateness of such investments for their
portfolio. While the information contained in this
document has been obtained from sources deemed
reliable, no representation is made as to its
accuracy or completeness, and it should not be
relied on as such.
Past performance is not necessarily indicative of
future performance.
Sources for Hedge Fund Indices: Greenwich
Alternative Investments Indices
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