Hi GAT, I noticed the performance of the AHL evolution fund (unfortunately closed!) vs their flagship fund and vs competitors (e.g., Winton) is impressive on both an absolute and risk-adjusted basis. A couple of questions arise from this observation: 1. Do you have any advice on accessing less common markets? I know institutions would access a lot of these on swap. Some markets have trended very nicely in recent years (coal, uranium, cobalt) but there is close to zero liquidity in futures markets... Are there other alternatives to access liquidity you're aware of from a retail perspective? 2. I know they trade CDX. There are CDX futures but these lack liquidity. There are CDX ETFs, but it becomes difficult to manage margin in order to target volatility with fully funded cash positions... Any thoughts here? 3. Also, I note that the evolution program makes use of options strategies. Have you ever delved into this space? Thanks! AG
Sadly I think for retail investors it is very hard to get hold of these non traditional markets and there is no easy answer to your question. ETFs generally are the way forward, although obviously not as easy to margin. For CDX specifically another alternative which might be cheaper would be to buy a corporate bond ETF and short US treasury futures against it. I do know how the Evo fund trades options (or did 3.5 years ago) but I'm not allowed to talk about it. One of the original developers of the evo option strategy has his own website: http://www.helderpalaro.com/ Reading some of those papers should give you some clues. GAT
Feb numbers just out - solid month for their products. Feb & 12 month: Alpha +1.9 -6.6, Dim +0.8, -4.9, Div +2.7 -13.1, Evo +1.8, +2.2.
Today is a big day, I've started trading real money. Thanks for all your help in getting me this far! I have the following questions: You have a bunch of shares which I'm guessing you previously owned in your IB account. I have done the same. Shouldn't we really sell these and keep the money as cash? My concerns are that they will confuse performance, and mess up volatility targeting (as my script cannot really cope with it). I'm going to end up with a bunch of different currencies in my account. Should I be converting these to my base currency (USD)? Again, I want to hit target vol. (FYI I'm in the UK so pay taxes in GBP). Even though you are trading at 25% vol, do you keep 75% of the cash in your bank account & just run 25% of it @ 100%? I'm not sure why you'd accept the counterparty risk of IB when you don't have to (IB does pay interest though). I followed your instructions in the 'small account size' post, but concluded it was better to add as many markets as possible, as each has an equal chance of trending, even if you can only get into a few of them. That's the right conclusion, right? (currently 27 markets, $62000 net, 25% vol) I just want to say, reading your book last Easter has led me on the most enjoyable & interesting path I've been on for years. Thanks again! Chris.
1: In theory yes, but I'd have a huge heap of CGT to pay if I did that. That's why I hedge this exposure with futures instead; although I will tactically sell some shares this tax year as it looks like my futures trading will show a loss I can offset against. 2: I'd suggest you avoid having any unwanted excess currency balances; eg if you need Euros 100K for margin in european exchanges then don't have less than that (you'll then be borrowing Euros from IB, and paying an interest spread for the privilege) and don't have more than that (you'd be taking unnecessary Euro exposure). 3: Bear in mind at 25% vol targeting you'll probably need at least 30% of your account value for margin. So at best you can only move around 70% out - and that's before you lose any money; and you won't be able to increase any positions without stumping up more money. Personally to avoid having to move money backwards and forwards between IB and my bank I'd want to keep at least the maximum of (a) the highest margin I'd expect to carry (around 50%), PLUS (b) at least one unit of annual vol. So that's probably 50% + 25% = 75% of account value kept with IB. 4: Well, the whole point of the small account post is trying to work out the tradeoff between having more diversification and having binary positions!! If you're not following my advice - and it doesn't sound like you are - then you're disagreeing with that conclusion... Thanks for the kind words about the book GAT
@isotope1 1. Have you analysed the value volatility of the "bunch of shares" that you are holding? If that volatility is a lot smaller than the (25%?) futures volatility you are targeting you can just as well ignore that volatility. 2. IB will analyse every day the cash position in each currency you have. They don't do this on your total account overview, but on a per-currency basis. If a cash position in a certain currency is negative they will charge you debit interest. So it is better to make sure that you are always having a (small) positive cash balance in each currency you use. Unless you don't mind paying these interest fees, or if the conversion costs of the forex trades would be higher. Been there, done that, have seen the interest charges on the monthly statement. 3. You will most likely need to keep your entire account value in your IB account as collateral for the margin requirements. IB will block your trade if you want to expand a position but don't have enough collateral in your account. Been there, have been exposed to it. 4. I disagree with your conclusion.
Is there any reason for not trading individual stocks systematically? won't it help to add diversification to a portfolio?
It would require a lot more work than the 5 minutes a day I currently spend on my trading. But I'm not ruling out doing it in the future. GAT