Transcript www.itrac.com

IntelliTrade, Inc.
Equities Portfolio
Overlay
Portfolio Overlays
• Portfolio overlays offer equity investment managers improved risk
adjusted performance through the use of hedging and position size
modulation.
• IntelliTrade’s overlay information can reduce portfolio drawdowns
and increases risk-adjusted-returns by employing dynamic hedging
techniques.
• IntelliTrade’s quantitative algorithms produce daily hedging
information to help managers improve risk adjusted returns.
• IntelliTrade’s tools help managers exceed benchmarks, peers, and
client expectations, giving a strong competitive advantage.
Sharpe Ratio
•
The Sharpe ratio characterizes how well the return of an asset compensates
the investor for the risk taken. It is roughly the asset’s annual return divided by
the standard deviation of its daily returns (or losses).
S&P 500 Index (magenta) Vs. IntelliTrade Results (blue) - over 10 years
18000000
Note significantly less volatility for equivalent returns.
16000000
14000000
12000000
10000000
8000000
6000000
4000000
2000000
0
1
106 211 316 421 526 631 736 841 946 1051 1156 1261 1366 1471 1576 1681 1786 1891 1996 2101 2206 2311 2416
Tactics - how it is used
•
Each evening that the US equities markets are traded, Intellitrade publishes via their web site,
a suggested binary position for the next traded day: either long or flat (in, or out of the market).
•
http://www.itrac.com/fore/
Current
position
(long or
flat)
ITRAC
IntelliTrade, Inc.
www.itrac.com/fore
1 = long,
0=flat
0
Current position:
FLAT
November 10,
2014
•
If the suggested position is “flat”, consider hedging your portfolio, as it is more likely that a
near term market drawdown will occur.
•
If the suggested position is “long”, do nothing. No hedge is required. Maintain your portfolio as
you normally would.
Tactics - continued
• IntelliTrade’s positions change about once a week on
average, and can run for many weeks with no change.
• The manager determines the level of hedge for their
circumstances. For example, a full hedge would imply
the manager was completely out of the market. A 10%
hedge would imply that one tenth of the funds value has
been hedged against drawdowns.
• In addition to the binary signal, IntelliTrade produces a
graduated signal, ranging from 10 (fully long) to 0 (fully
hedged) for those managers desiring additional detail.
Hedging Instruments
•
For equity portfolios, there are a number of ways to temporarily take downside risk
out of a portfolio. A manager may purchase shares of an inverse ETF, such as the
Direxion Daily S&P500 Bear 3x shares (ticker: SPXS).
•
ProShares has a short S&P500 ETF, (ticker SH), that is very liquid and accessible.
•
E-Mini S&P, often abbreviated to "E-mini" (despite the existence of many other E-mini
contracts) and designated by the commodity (ticker ES), is a stock market index
futures contract traded on the Chicago Mercantile Exchange's Globex electronic
trading platform. The notional value of one contract is 50 times the value of the S&P
500 stock index.
•
Yet another hedge is to sell S&P500 futures contracts. These are traded on the CME,
(ticker SP) and are extremely liquid. The contract changes value by $250 per S&P500
“big point”.
•
Specifications for the ES and SP contracts are available at: http://www.cmegroup.com/trading/equityindex/us-index/e-mini-sandp500_contract_specifications.html
Partial Hedges
• The manager may elect to employ a partial
hedge against the underlying portfolio. As long
as Intellitrade’s systems signal “flat”, the hedge
is left in place. When IntelliTrade signals “long”,
all hedges are eliminated.
Note: With futures contracts, expiration month’s must
be managed, and positions rolled forward to active
months before expiration. Contract specifications are
available at CME’s website.
• http://www.cmegroup.com/
IntelliTrade’s Results
S&P 500 Index (magenta) Vs. IntelliTrade Results (blue) - over 10 years
18000000
Note significantly less volatility for equivalent returns.
16000000
14000000
12000000
$
10000000
8000000
6000000
4000000
2000000
0
1
107 213 319 425 531 637 743 849 955 1061 1167 1273 1379 1485 1591 1697 1803 1909 2015 2121 2227 2333 2439
Ten Year History
Last full year returns overlaid onto S&P 500 index
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800000
Re lativ e Pe rformance , S&P 500 inde x(mage nta) VS. Inte lliTrade Portfolio (blue ), 1 ye ar history
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$400000
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0
1
-100000
10
19
28
37
46
55
64
73
82
91 100 109 118 127 136 145 154 163 172 181 190 199 208 217 226 235 244
When to exit the market – event driven portfolio management
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August,2014
S&P 500 index, 20 year history
2000
Dot-com bubble burst
Exit (or short) stock market when
slope of yellow line turns negative.
Housing Bubble Burst
S
&
P 1500
Yellow line = simple 250 day,
then 60 day
moving average of S&P 500
index.
i
n
d 1000
e
x
500
Re-enter w hen slope goes positive.
0
1
560 1119 1678 2237 2796 3355 3914 4473 5032
Ten years of history
Features
• State-of-the-art quantitative forecasting
tools
• Daily position updates
• Highly accurate
• Highly valuable
• Actionable
• Accessible via the Internet
• Rigorously Verified model generalization
Benefits
•
•
•
•
•
•
•
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Lowers market exposure risk
Improves risk adjusted returns
Helps to avoid drawdowns
Improves Alpha
Eases clients concerns about volatility
Exceeds benchmarks and peers
Helps bring in new funds and clients
Managers can keep existing portfolio’s
Conclusion
• In summary, IntelliTrade’s proprietary systems produce
highly valuable position management information. This
allows dynamic hedging of equity assets to both improve
returns (alpha) and reduce volatility and drawdowns.
• IntelliTrade uses normal scientific experimental design
with measures of unbiased testing of the forecast against
subsequent reality.
• We encourage you to track our performance to gain
confidence in the techniques.
• Markets can fall, be ready.