Vulpes Investment Management is set to launch its first systematic trading strategy, Nova, next month. It sees the current environment as a good time for this type of fund, particularly in Asia.
The Singapore-based firm, set up by Artradis founder Steve Diggle after the volatility-focused hedge fund shut in 2008, started work on the project over a year ago with a view to diversifying its strategies.
In July Nova will start trading Japanese and Australian equities using $500,000 in seed money contributed by the Vulpes' principals. Nova may in future move into Asia-Pacific markets and into futures as a way to put on hedges at the portfolio level.
There are no exchange fees charged on Australian and Japanese stocks, but if Nova trades markets such as Hong Kong, where stamp duty is levied, it will likely trade less frequently and with longer holding periods to reduce the impact of higher fees on returns.
Nova is a medium-frequency (average holding period: one hour), intra-day systematic trading strategy that executes small trades to capture alpha from stocks seen as trading away from their fair values. Chief risk officer Scott Treloar, Nova's key designer, has spent over a year on developing and back-testing it.
“We feel there are still plenty of opportunities for quant trading in Asia, which is characterised by idiosyncratic market structures and diverse regulatory regimes across various time zones,” said Treloar.
Given that Asian exchanges are just starting to build out their electronic trading capability, these markets still present attractive opportunities for quant investors, as most hedge funds trading Asian markets are largely discretionary stock-pickers, noted Treloar.
Nova is Vulpes' second equity strategy managed; it also has a buy-and-hold fund called Testudo, which has $100 million in assets and has been running for five years.
Vulpes' principals feel that systematic trading – which is underpinned by advanced statistical modelling and execution algorithms – is a good complement for the firm’s non-financial market assets.
Designed to replicate a family office structure to enable co-investment, Vulpes also runs funds that invest into German real estate and agricultural land. The firm has $200 million in assets under management.
In recent years, its management has made a deliberate decision to diversify away from financial markets as volatility has hit a multiple-year low amid moves by central banks to back-stop risks in the financial market and economy.
“As a firm we believe that many of the traded asset markets today are expensive and responding to central bank intervention rather than to market forces.”
“We may look at volatility later, but when the Vix [the Chicago Board Options Exchange's market volatility index] is at a multi-month low, trading volatility is a bit pointless,” said Treloar.
Vix, known better as the stock market’s 'fear gauge', dropped to 10.99 on June 10. Over the last 14 years it has averaged 19.99, and the last time Vix came close to the current level was on March 31, 2006 when it hit 11.39.
Treloar said the timing for launching Nova corresponds with competition from technology companies entering the asset management industry in recent years, and with advancement in machine learning and streaming algorithms to interpret and analyse high-volume data.
There are three other individuals helping run the strategy: a quant-model developer, technology officer and account finance executive.