DUNN Capital Management was established by legendary futures trader William Dunn, PhD, back in 1974. The trading strategy is 100 per cent systematic. The firm’s flagship fund – the USD308m DUNN World Monetary & Agriculture (‘WMA’) Program – began trading in 1984 and uses trading algorithms to build long and short positions in a medium- to long-term trend-following strategy.
DUNN charges no management fee, only an incentive fee. This is to help reassure investors “that we are on the same side of the table. Also, 50 per cent of our trading capital is our own money. We trade exactly the same programme as our investors and our money is right alongside theirs, it doesn’t get any preferential treatment,” confirms Marty Bergin (pictured), President of DUNN Capital Management.
Despite the last few years having been challenging for the majority of CTAs, DUNN has stood out. As Bergin confirms: “We were up over 30 per cent for 2013. We implemented some significant new research in January 2013 which we think contributed a good part to our performance.”
This programme modification, developed in-house, which DUNN now employs to trade 53 global liquid futures markets spanning financials, energy, currencies, metals and agriculture, is referred to as ARP: Adaptive Risk Profile.
As Bergin says, DUNN has long been one of the more volatile managed futures strategies, having used a monthly value at risk (VaR) profile targeting 20 per cent at a 99 per cent confidence level (e.g., a 1 per cent chance of losing 20 per cent or more for any given month). With ARP, the WMA Program is now able to take a more dynamic stance and dial up or dial down the volatility depending on market conditions.
“For a number of years we’ve been thinking about how to control downside volatility without giving away upside returns. With ARP, the programme looks at the risk of the marketplace and systematically determines whether to target the VaR at 20 per cent or trade at a measure less. In other words, changing the level of risk based on how we perceive the market. Our average VaR, instead of being 20 per cent, is now closer to 15 per cent,” explains Bergin, noting that the VaR range for the programme is between 20 per cent and 8 per cent.
This is evidenced by the fact that in 2014, the programme is down -5.77 per cent through April but the VaR is approximately 14 per cent.
“At the start of the year that figure was around 17 per cent. Last year, the VaR ranged between 20 per cent and 12 per cent. We ramped up the volatility early in the year and made strong returns in February. Indeed, through the first four months of 2013 we were at a new high,” confirms Bergin. Market trends then petered out before returning towards the end of the year, allowing the WMA Program to lock in further gains at a higher VaR.
This flexible approach to managing risk has led DUNN to roll out an institutional version of the strategy – in the form of a managed account – for large investors who prefer to have a more conservative volatility profile. This WMA Institutional Program runs at 50 per cent of the VaR of the flagship strategy and currently trades USD100mn in assets.
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