Frankfurt am Main, November 24 2015
Anticyclical option writing strategy
Strategy builds on special fund’s successful seven-year track record
Stable income and low volatility thanks to disciplined risk management
The strategy pursues a rules-based, but not purely quantitative approach with a very low correlation to equities and bonds. The annual target return is 4 to 6 percent net of fees with very low volatility. Continuous capturing of option premiums is expected to be the key performance driver. The fund uses exclusively short-term exchange-listed equity and equity index options from the euro area, potentially complemented by options on Bund, Bobl and Schatz futures.
“The fund pursues an anticyclical strategy of selling calls in overbought market phases and selling puts in oversold market phases rather than applying complex option strategies,” said fund consultant Andreas Ecker who developed and manages the strategy. Broad diversification across an average of 100 to 150 positions a year serves to avoid concentration risk. Diversification relates not just to the underlying securities but also to the duration and the anti-cyclical component. The fund focuses on maintaining the highest possible liquidity through investments in high-class short-term bonds.
Disciplined implementation of a combined top-down and bottom-up approach
Security selection is based on a combination of fundamental and technical analysis with behavioural finance insights. Option writing positions are opened only when the security and market analyses generate matching signals. No positions are opened when signals diverge or in a neutral environment. As a result, the number of open positions in the option portfolio will vary and the fund will maintain its flexibility in different market phases. However, even congruent signals do not trigger an automatic response. “With our two-step approach we want to filter out risks that models cannot capture”, says Ecker in describing the philosophy behind the concept. Step 1 one the investment approach is systematic and rules-based, while step 2 also includes discretionary elements. The combination of quantitative and qualitative factors represents the key performance driver. “The fact that more than 95 percent of transactions completed since the introduction of this strategy eight years ago have been positive clearly endorses our approach,” Ecker notes.
Risk management represents an integral component of the investment process. To reduce correlations with market movements, open positions are rigorously repurchased when a high proportion of captured premiums has already been earned. In addition, to prevent the fund price from even getting close to the target price floor of 94 percent, loss-making positions are closed early. “We do not simply hold on to positions but aim to close them at the latest when the price of an option is twice as high as the received premium or when the loss of a position amounts to 0.25 percent of fund volume,” Ecker explains. The fund’s performance is locked in successively by regularly adjusting the price floor in line with the rising fund price. As such, the maximum drawdown target of 6 percent always relates to the highest fund price achieved in any one calendar year, but is not guaranteed. The strategy is designed as a complementary allocation for investors looking for stability and an uncorrelated strategy to further diversify their portfolio.
Fund: ART CapaMi UI
Fund initiator: AR TRUST GmbH, Cologne
Investment company: Universal-Investment Gesellschaft mbH, Frankfurt am Main
BVI category: Other securities funds
Fund currency: Euro (EUR)
Unit type: Distribution
Performance fee: Up to 10 % of the fund’s excess return versus the benchmark during the accounting period (positive absolute fund unit performance +4 %), but only when the unit value reaches a new high compared with the end of the five preceding accounting periods.
WKN / ISIN: A14UV1 / DE000A14UV11
Ongoing charges (estimate): 1.1 % p. a.
Minimum initial investment: None
Initial charge: Up to 2.5 %
WKN / ISIN: A14UV0 / DE000A14UV03
Ongoing charges (estimate): 1 % p. a.
Minimum initial investment: EUR 5 mn
Initial charge: Currently 5 %
AR TRUST GmbH based in Cologne, Germany, is an independent, owner-led multi-manager platform for portfolio managers in Germany, Austria and Switzerland. It aims to bundle innovative investment strategies under one roof and establish excellent managers in different asset classes in the market. At the same time, AR TRUST supports asset managers with a comprehensive portfolio of services ranging from sales activities and marketing and communication measures to raising seed money. Asset managers can draw on the company’s entire service offering or select individual services to focus exclusively on their core competence, asset management. According to Erich Schilcher, Managing Partner of AR Trust, the company focuses on disciplined, risk-averse investment strategies coupled with a strong sense of responsibility and full transparency. By the end of 2015, the company will already support three independent approaches. Assuming full alignment with AR Trust’s philosophy, further concepts may be added in future.