Kevin McConnell, fund manager of Bloxham’s Midas Global Absolute Return Ucits III Fund, has revealed strategies designed to fight liquidity difficulties in the market going forward into 2011.
“Our portfolio can go up to 100 per cent in cash when markets are highly volatile and uncertain,” says McConnell.
“Over 2010 we have seen high positive correlation between stocks making it a very dangerous market-place generally – and one where many long/short equity absolute return funds have struggled.
“We believe this newer strategy will provide consistent absolute returns with lower volatility, as it can identify trends long before other established techniques and take advantage of overbought/oversold stocks globally.”
The fund is based on a proprietary Midas model developed in-house since 2002 by McConnell and his team.
Today the model analyses stocks in a technical screening mechanism which provides a daily shortlist of stocks that give a high levels of conviction.
“Stocks tend to fall into three areas,” says McConnell.“Oscillation, where stocks tend to trade in a range and become overbought or oversold, secondly, where stocks break into trend on an upside or downside basis, and thirdly, where stocks are in confusion.
“The model has evolved since 2002, designed to be able to identify stocks in oscillation (overbought or oversold) and stocks going into positive and negative tend.
“This is very powerful although the strategy is not ‘black box’ in that the Bloxham team is very macro aware of the big events happening in the marketplace.
“Rather, we would prefer to describe it as having a human macro overlay on a highly technical driven underlying strategy. The stock selections come from the proprietary ‘Midas’ model but the sanity check or overlay is the human intervention and experience that allows us to mix the portfolio to best suit the market conditions we are currently dealing with.”
When deciding to invest in a stock the Midas proprietary model contains back-tested information. If stocks enter a particular oscillation phase the firm knows how successful that stock has been trading at in the past ten years.
Bloxham attempts to take advantage of effectively the reoccurrence of the natural state of the stock position within our trading.
When a stock is in positive trend it will exit the stock when the trend starts to break down and look for the next opportunity.
When a stock is in negative trend it will short the stock but again exit when the negative trend starts to break down.
Bloxham has returned around 28 per cent since June 2009.
“This was achieved with an average cash position of over 40 per cent with volatility at one third of the market,” says McConnell.