AI hedge fund Quantumrock’s flagship volatility strategy off to a winning start in Q1

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German volatility-focused quantitative hedge fund manager Quantumrock’s flagship strategy has finished the first quarter up 2.77 per cent after successfully trading on the spike in volatility earlier in the year.

The Volatility Special Opportunities Program (VSOP) – a systematic equity tail hedge strategy which trades a range of positions focused on equities and treasuries index volatility – generated a 1.79 per cent gain during the late February rise in volatility. Autocorrelation strategies on the S&P 500 and US treasuries added a further 0.98 per cent.

Quantumrock CIO Michael Zeller noted the rising bond yields and value-based equities rally during Q1, driven predominantly by the US fiscal stimulus, sparked by the Democrats’ victory in Georgia, as well as rapid vaccine rollout Stateside.

“The rise in bond yields has been closely correlated with significant outperformance for financials and value stocks,” Zeller said, adding that value stocks have risen 9.8 per cent year-to-date, compared with just 0.3 per cent for growth stocks.

“The positive performance of VSOP this quarter reflects that our strategies’ tail hedging capabilities through situative long VIX exposure are performing well.”

The VSOP fund aims to predict and capture volatility spikes induced by downturns in equity markets and to then over-compensate potential losses, while also looking to generate alpha amid bullish market phases.

Last year, the Munich-based machine learning strategy soared to a 31 per cent bumper return – its strongest annual performance since 2016 – as long-volatility and tail-risk hedge fund strategies made outsized profits during the seismic market slump at the start of the Covid-19 pandemic.