Bestinvest says
This is essentially a mechanical trading, rule based hedge fund. Unlike hedge fund replicators it does not replicate the returns of hedge funds using regression and liquid instruments. The FAB+ fund seeks to outperform hedge fund indices, by using known risk premiums to construct a portfolio using cheap instruments
The Fulcrum fund has 3 components:
1) 50% of the fund’s risk is in 'beta'
This ‘equally risk weighted’ part of the portfolio will perform well generally when equity markets rise.
2) 50% in trend.
This is largely a trend following momentum strategy. When equities sell off, this generally causes an allocation shift away from equities into government bonds. I
3) Option Overlay; On a regular basis the key risks of the fund are identified. Options are used (calls fund puts) to protect against situations
This is essentially a mechanical trading, rule based hedge fund. Unlike hedge fund replicators it does not replicate the returns of hedge funds using regression and liquid instruments. The FAB+ fund seeks to outperform hedge fund indices, by using known risk premiums to construct a portfolio using cheap instruments
The Fulcrum fund has 3 components: 50% of the fund’s risk is in 'beta', 50% in trend and the third component is an option overlay.
1) Passive (also referred to as ‘The Beta Component’.)
This ‘equally risk weighted’ part of the portfolio will perform well generally when equity markets rise.
Like many of our long only managers, Fulcrum use screens – and these include
Equities
_ Developed Market Returns
_ Emerging Market Excess Returns
_ Value vs. Growth Strategies
_ Small Cap vs. Large Cap Strategies
Fixed Income
_ Government Bond Returns
_ Yield Curve Carry
_ Emerging Market Bond Returns
_ High Yield Returns
Commodities
_ Commodity Trading Strategies
Currencies
_ Developed Market Currency Trading
_ Emerging Market Currency Trading
2) The Active Strategy – (Also referred to as ‘Trend’)
This is largely a trend following momentum strategy. Larger systematic futures funds (CTAs) follow this strategy e.g. Winton, MAN AHL etc and they tend to outperform in trending markets. When equities sell off, this generally causes an allocation shift away from equities into government bonds. In 2008 Trend followers managed to exploit this very well, and as equity markets were down 40% ‘Trend Followers’ were up 20% (some 40%).
As well as trend following , the fulcrum active component incorporates mean reversion strategies and stop losses – these help the algorithm to make money in range bound markets and to avoid losses in whip-sawing markets.
3) Finally, the third component is an actively managed option overlay.
On a regular basis the key risks of the fund are identified using various mathematical techniques. Options are used (calls fund puts) to protect against situations where both 1) the passive strategy is down and 2) the active strategy is down. Tail events. May 2010 was such a month, where the protection pulled the performance up.