Spring Valley Asset Management, an alternative investment manager specialising in the application of systematic investment strategies, has launched the Commodity Advantage Portfolio.The portfolio pursues a multi-strategy systematic approach to investing across a diverse selection of highly liquid commodity markets (including precious metals, industrial metals, energies, grains, foods, fibres and meats), offering the potential for attractive risk-adjusted returns, controlled downside volatility and distinct correlation benefits within a cash efficient (ie, low margin) investment vehicle. It utilises a series of proprietary forecasting models to “map” the prevailing alpha opportunity set for each individual commodity market based upon an assessment of market volatility and price action across multiple time horizons; thereafter, the firm’s Dynamic Allocation Model assigns a unique subset of trading models that are best suited to profit given the forecasted alpha opportunity set for a given commodity market.
Each of the underlying model sets are opportunistic in nature and may evolve over time, and each may include models that seek to capture directional, mean reverting, cross-commodity and cross-sectional opportunities.
The result is a diverse portfolio that seeks to optimise both risk exposure and alpha capture across each individual commodity market; to this end, risk exposures are systematically determined at the individual model, subset and portfolio levels, while holding periods range from mere days to several weeks in duration.
“The Commodity Advantage Portfolio’s trading methodology is premised upon the notion that, unlike the highly correlated nature of global stock and bond markets, the unique fundamentals of each commodity market gives each a distinct ‘personality’ in terms of its individual price behaviour,” says John Ryan, Spring Valley’s Managing Principal. “With respect to supply and demand fundamentals, seasonal characteristics, weather-related patterns or government/trade policy, the unique confluence of factors that drive price behaviour in a given commodity market warrants a trading approach that is specifically tailored to that commodity market.”
The Commodity Advantage Portfolio commenced trading in November of 2020; given the relatively short-term nature of its trading, the focus on commodity markets and the unique tenets of Spring Valley’s proprietary modelling process, it is anticipated that the portfolio will exhibit distinct correlation benefits and a more/consistent risk/return profile over time when compared to both traditional investments and other hedge fund strategies.