Wed, 21/12/2011 - 06:00
SYZ & CO has has launched OYSTER Multi-Manager Tail & Trading, a new sub-fund of its Luxembourg Part II SICAV 3A Alternative Funds.
Devised by SYZ Asset Management, this innovative new fund combines two complementary alternative strategies in order to provide investors with protection in the current environment, which is generally unfavourable to traditional asset classes. It thus combines decorrelated CTA funds with funds that pursue a strategy of active protection against extreme risks (“tail risk”). Thanks to its low correlation with the financial markets and other alternative strategies, this new fund aims to provide a significant improvement in the risk profile of a traditional portfolio.
CTA funds (“Commodity Trading Advisors”) are alternative strategies that have a number of advantages: low correlation with the financial markets, a systematic management approach, high liquidity and positive yield expectancy. Historically, these funds have afforded effective protection in typical market downturns and are therefore a good complement to a traditional portfolio. These strategies are volatile, however, and may undergo abrupt trend reversals.
Extreme events, by definition, are rare but when they do occur - as in 2008 - the correlation between the different asset classes tends to increase and diversification no longer protects portfolios effectively. Usual protection against these events consists of using a passive portfolio insurance strategy, by buying put options that are renewed at maturity. Unfortunately this practice is expensive and, in the long term, its costs exceed the gains made during the periods of stress. In contrast, in the case of the OYSTER Multi-Manager Tail & Trading fund, SYZ Asset Management invests in funds that have an active risk management strategy. This active approach consists of constantly selecting the most attractive put options, in order to reduce the cost of insurance during periods of low volatility whilst maintaining potential gains in the event of increased volatility.
The OYSTER Multi-Manager Tail & Trading fund allocates the majority of its assets to CTA funds (combining short-term, medium-term and macro systematic approaches) and supplements it with an active risk management strategy. The proportion allocated to the two strategies may vary.
The pro-forma historical results of this combination are particularly attractive, in terms of both annualised performance and volatility. In view of these good results and a low correlation with the financial markets and the other alternative strategies, the inclusion in a traditional portfolio of an allocation – however moderate – to this strategy significantly improves its maximum drawdown and volatility characteristics.
This new strategy is available in five different reference currencies (USD, CHF, EUR, GBP and JPY). The fund invests its assets exclusively in the products based on the managed accounts platform developed through the cooperation between SYZ Asset Management and UBS Investment Bank. OYSTER Multi-Manager Tail & Trading provides weekly subscriptions and redemptions. The fund is only aimed at an institutional client base.
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