Asymmetric Investment Returns - Insights into portfolio management beliefs, strategies, and tactics that aim to create a positive imbalance between risk and reward

Today, exchange traded funds (ETFs) provide exposure to a wide range of markets and market factors that would have previously only been accomplished with by trading futures. ETFs allow us to apply our tactical systems to rotate between world markets like currency, bonds, stocks, and commodities. The iShares video below explains commodities. 

Learn more: iShares GSG Fund Prospectus: http://www.ishares.com/GSG)

Recent posts:

Stock Index Performance for 2011 and the Full Market Cycle

2011 Hedge Fund and Commodity Trading Advisor Performance

Most Relative Return Mutual Funds Underperformed Benchmarks In 2011

Trading vs. Investing

The truth about asymmetric market returns: fat-tails and black swans

Investor Reaction to News is Asymmetric

Asymmetric and Exponential Nature of Losses

Asymmetric vs. Symmetric Trading Systems: Asymmetry or Symmetry?

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ETF Relative Strength during a market trend transition

The Asymmetry™ Ratio: The Asymmetric Investment Return Profile of Risk vs. Reward

Stock Index Performance for 2011 and the Full Market Cycle

2011 Hedge Fund and Commodity Trading Advisor Performance

Most Relative Return Mutual Funds Underperformed Benchmarks In 2011

The Illusion of Asymmetric Insight

Asymmetric Returns, Asymmetric Pay-offs, and Asymmetric Assets

Eating Pie Will Keep You on the Treadmill

Asymmetry and Disequilibrium, not Symmetry and Equilibrium

Global Tactical Rotation Relative Strength and Trend Following ETF Models for professional investment managers

Shell Capital Management has one of the strongest and longest running track records applying our Global Tactical Rotation systems to exchange traded funds (ETFs).  Our Global Tactical Rotation systems rotate capital between different markets and securities in direct response to changing market conditions, rather than allocating capital based on a fallible expectation or opinion. Our tactics combine active risk management,  directional trend following, relative strength, and momentum. Global Tactical Rotation is quantitative and systematic, developed using evidence-based scientific methods and emprical research.

Over the years, I’ve had many inquiries from investment professionals of all kinds who are interested in managed accounts where I manage their client accounts. Others are interested in a sub-advisory type relationship where we would provide trade signals and they execute the signals as the portfolio manager. These professionals are registered brokers at Wall Street banks, independent registered investment advisers, or fund managers.

With the Asymmetry Capital Partners™ program, we offer managed accounts. But in some cases, the professional isn’t able to open client accounts with our custodian. Or, the professional advisor would prefer to execute the trades as the portfolio manager. For these professionals, we have started a new institutional service.

Global Tactical Rotation is an institutional advisory service available exclusively to registered investment professionals. You must have a CRD number that we can verify your registration status with FINRA or the SEC.  If you are a fund manager, a Private Placement Memorandum (PPM) will suffice.  (Please note: We will not discuss this service with anyone that does not provide this in advance.) This service is not available to individual investors. For non-professionals, please see our Asymmetry Investment Program™ managed account.

Global Tactical Rotation is an ETF portfolio. It is a systematic tactical rotation between cash, currency, bonds, stocks, and commodities using Exchange Trades Funds (ETFs). It may be compared to a Global Macro strategy or a Global Tactical Asset Allocation strategy, but its system is proprietary to Shell Capital and unique in its rotational methods and risk management. The professional will receive specific buy and sell signals. As a complete system, it includes what to buy, when, how much, when to sell losers, laggards, and winners to take profits.

To learn more, please visit www.GlobalTacticalRotation.com

The topic of selecting an investment manager is an important one. Many investors, including professional financial planners and advisors admit they have little skill at selecting asset managers. In fact, some admit they do such a poor job at it they don't even try. But if you understand the value in alternative investment strategies from private equity to absolute return focused investment programs, then you need to know what to look for in an investment manager. These alternative investment strategies are most often offered privately in a private hedge fund format and sometimes offered as a separate managed account (SMA). Whether you are a private individual investor, an allocator for a family office or institution, or a portfolio manager, the video below is an outstanding example of how a sophisticated investor analyzes a money manager. It’s an interview with the Chief Investment Officer of a family office. He explains why a family who sold a large business may be interested in alternative investments or alternative investment strategies rather than conventional public investments and investment programs like mutual funds.  His family office has allocated 80% to alternative investment managers (like hedge funds and the Asymmetry Investment Program™). He offers some insight about:

• Why family offices (and other wealthy investors) are attracted to alternative investment strategies commonly offered as a private hedge fund.
• What they specifically look for in selecting a portfolio manager.
• How allocators filter managers post crisis:  What exactly did you do in 2008?
• Are they looking at younger emerging hedge fund/money managers?

Click below to view:

On how they select hedge funds:  (begins around 4:07/9:57)

We are looking for opportunities with managers were we can get comfortable as to their strategy and what will generate returns for them and what the risks might be? We haven’t been very active with emerging or start-up managers. I think a lot of that has to do with where we are in terms of time.

2008 was an awesome and an awful market experience it's helpful to look at managers who actually were in existence during that period of time to gain some understanding of how they manage their portfolios are the most difficult. Someone doesn't have a 08 track record is much harder to get a sense of how they're going to do a difficult markets. 09 was a pretty easy market to make money if you were long.

How are you evaluating the 2008 period what are you looking at specifically, the drawdown?

We obviously start with performance but  I also want to see exposure in the portfolio. How did the manager navigate those markets? Did he keep his portfolio fully invested in a market environment for his strategy was not allowing it to make money was actually causing losses? Did he trim exposure? When did he put exposure back into the market place?  is something that we look at it. It's really it's a number of different factors we try and I can understand how the manager managed during that period of time and try to gain some insight on his style. Conviction doesn't automatically mean that you stay fully invested at all times. Although we certainly saw a number of managers who waited FAR too long to trim their exposure. So,  it's a combination of all those factors we try and consider. But I would say one of the things that are most important to me is trying to follow a managers gross and net exposures during that period trying to understand. That leads to conversations of what the manager was thinking at the time.

He goes on to say: 

I like analogies. And one of the analogies in 2008 brings to me it’s like a sailor setting his course on a sea. He’s got a great sonar system, he’s got great maps and charts and he’s perhaps got a great GPS so he knows exactly where he is. He knows what's ahead of him in the ocean but his heads down and he’s not seeing these awesomely black storm clouds building up on the horizon are about to come over top of him. Some of those managers we did not stay with. Managers who saw that, who changed course, trimmed their exposure, or sailed to safer territory. One, they survived; they truly preserved capital in difficult times and my benchmark for preserving capital is you had less than a double-digit loss in 08, you get to claim you preserved capital. I've heard people who've lost as much is 25% of investor capital argue that they preserved capital… but I don't believe you can claim that. Understanding how a manager managed and was nimble during a period of time it gives me great comfort, a higher level of comfort, on what a manager may do in the next difficult period. So again it's a it's a very qualitative sort of trying to come to an understanding of what happened… and then make our best guess what we anticipate may happen next time.

As a portfolio manager of an alternative investment program I can tell you he's spot on. Those whose jobs are that of the asset allocator, who allocates capital to investment programs, often rely too much on Modern Portfolio Theory statistics and not enough on looking very closely under the hood. As a quantitative trading system developer and operator, we are focusing on far different things and I can tell you: it's the things that matter. It's critical that the investor or allocator take a close look at the downside: how was their drawdown from peak to trough? What were the actual holdings during that time? Like he said: do they stay in the market even when it's not working for them? Or, do they reduce their exposure to the possibility of loss (risk management) by selling positions or dynamic hedging?

I also agree with his comments about experience. After such a radical waterfall occurred in 2008 - 2009, more investors and professionals have now figured out the state of the market. In a secular bear market, such waterfalls occur and it can happen again. After the fact, many investment professionals have scrambled to come up with solutions and naturally they'll be attracted to what actually worked in the past: like some forms of Global Tactical Asset Allocation, Trend Following, and other so-called "alternative" investment strategies like we run. We now have new people interested in active portfolio management that seek an absolute return, rather than a relative return. But like he said: they lack the actual experience. You really don't know how they'll react in the heat of the battle. But you can be assured of this: back-testing a system is one thing, executing is another.