Investment Committee – February 2022
Current environment
Although 2008 epitomizes the bear market in equities, recent years witness higher frequency of severe episodes. In addition to the usual macroeconomic factors, the unpredictability of these events is also related to the changing market microstructure – most notably the effect of derivatives. Sudden market corrections can have a lasting impact on portfolio performance, often leading to considerable recovery times. It is therefore paramount for the long-term health of our clients’ portfolios to avoid these extended drawdowns.
January offered a perfect example. Overstretched company valuations in combination with extreme derivatives positioning provided the conditions for a storm which brought S&P500 down -5.3%, from 4766 to 4515, and the VIX volatility gauge from 17% to 25%.
Despite the above, our flagship offering – the Global Navigator – managed to close flat for the month, committed to its aim to provide a compelling alternative to mainstream assets such as stocks and bonds.
Playing a yesterday’s game
The Committee took time to discuss in length the architecture of our trades and how the effect of derivative transactions is not yet highlighted enough. The conclusion was that if investors today are not keeping up with the options activity then they are playing yesterday’s game. Our readers can find more details about the effect of the options activity in the markets in the post: “The Gamma effect: its all technical after all”
Our systematic offering and the effect of gamma
Since 2020, we have enhanced our systematic strategies with measures of the options activity in the market so that our systems become more short-term focused and more reactive to price action. As a result we become more dynamic during corrections and by doing so we generate excess returns versus longer-term focused funds with larger strategic allocations.
The key ingredient we do differently than the rest of the industry is filtering for the effect of the gamma derivative. More about our systematic strategies can be found in our portal (clients only)
Where is value in 2022?
We reiterate our conviction for value oriented companies as they offer an attractive opportunity for the current environment (see here). During last year we approached this topic in a variety of ways using our proprietary methodology in ranking value and high-dividend stocks as well as our structured notes. More information with specifics can be found in our portal (clients only).
Finally, we believe that emerging markets offer attractive valuations both in equity and debt. With existing valuations they seem to form the current efficient frontier.
KM Cube’s insight for this month is largely for a stabilizing move that will prove mean-reverting for most risk assets that spiked or dipped during January.
KM Cube offering and tools
Unicorn Systematic Strategies
The flagship of our product offerings is the Unicorn Systematic Strategies AMC.
We manage your portfolio based on a set of several well-known trading strategies that offer a sound academic and scientific background. Throughout the years we have implemented and applied these strategies ourselves with significant success.
Global Navigator
The flagship of our product offerings is the Incometric Athos Global Navigator Fund.
Its strategy holds a core portfolio of fixed-income securities as well as high-conviction stocks for the long-term. The portfolio is topped-up with an overlay strategy of financial derivatives to weather the downturns and maximize returns.
