DeltaHedge : DH Spica Program

Summary

DH Spica is a DeltaHedge program that seeks to generate attractive absolute returns through investment in different managers with different strategy approach. This multi manager, multi strategy program has two different souls: the first is a quantitative program with an expert fine tuning on each single trade, the second is a diversified portfolio of Automatic Trading Systems, ETF, covered warrants, Options, Futures and Bonds. Exchanges on which transactions take place, include but are not limited to all exchanges in the United States, as well as non-U.S. exchanges which include, but are not limited to, the Italian Stocks Exchange (BORSA ITALIANA) and the Italian Derivatives Market (IDEM), the Euronext N.V. (whit the London International Financial Futures and Options Exchange Ltd. (LIFFE), the Marche a Terme International de France (MATIF)and the Amsterdam Exchange (AEX), the London Stocks Exchange (LSE), the Irish Stocks Exchange (ISE), the Spanish Stocks Exchange (Bolsa y Mercados Espagnoles)and Spanish Future and option Market (MEFF), the Deutsche Bourse (XETRA) and the Eurex Deutschland (EUREX), Bolsa Mercadoria y futuros (BOVESPA), Intercontinental Exchange (ICE), Warsaw Stocks Exchange (WIG), National Stocks Exchange of India (NSE), the NY Stocks Exchange (NYSE), the Chicago Board Option Exchange(CBOE), Chicago Board of Trade (CBOT), the Chicago Mercantile Exchange (CME), Moscow Exchange (MICEX). The Future contracts that are currently traded by DeltaHedge on Spica Program include: (Equity) Amsterdam Exchange Index Futures, Ibex 35, CAC 40, Swiss Market Index, DAX 30, S&P 500, Ftse-Mib, Ftse 100, Eurostoxx50, Dow Jones, S&P 400, Nasdaq 100, Russell 2000, WIG20, Nikkei 225, FTASE 100, NIFTY 50; (Currency)Euro, Swiss Franc, British Pound, Australian Dollar, Japanese Yen, Canadian Dollar, Mexican Peso, Russian Rublo, Brazilian Real, New Zealand Dollar, Indian Rupee;(Energy) Sweet light crude oil, Brent crude oil, Natural Gas, Heating oil, Rbob Gasoline, London Gasoil; (Metals) Gold, Silver, Copper High Grade; (Agricultural) Wheat and Soybean, Corn, Soybean Meal, Soybean Oil; (Meats) Live Cattle, Lean Hogs. The specific markets traded have been selected utilizing both liquidity constraints and correlation analysis in an effort to reduce portfolio risk and add diversification. All the DeltaHedge programs are designed primarily for sophisticated investors and have the primary objective of the capital appreciation of its client’s assets through the speculation in portfolio diversification. No insurance can be given that this objective will be met and an investment in an account to be traded by DeltaHedge should only be considered by investors that can assume the significant risk of commodity future trading.

Investment Strategy

The DH Spica program approach is a mixed of market neutral and trend following approach. This allow the consumer account to be less exposed to market shock. In fact the correlation in market shock goes to one. This approach does not generate a great number of trades and represents a little cost in DeltaHedge’s trading activity. DH Spica program is focused on intraday and daily time frame with few weekly signals harmonized with a proprietary composite money management: less that only of 10% of total trades are closed in the day (strictly intraday trading), 10% is closed before the third day and 80% part have an average holding time in the market bigger than a week. Trading system is based on 3 separate components: 1) trading strategies determined by technical systems (developed on the basis of technical analysis and tested through historical simulations, with the objective to generate expected long term positive returns) which supply different buy/sell signals for each market; 2) Portfolio Selection model: portfolio allocation is weekly reviewed by an internal testing process; 3) Capital management system: a dynamic capital management allows to automatically modify risk exposure and capital utilization. DH Spica is not a strictly intraday trading program. A prospective customer, however, should be aware that an increase in trading activity results in an increase in total commissions to an account which could subsequently reduce overall performance considerably. DeltaHedge takes precautions to limit/manage risks where possible. Short term approach to trading does not imply less risk in trading.

Risk Management

Risk control is a primary task in running a managed futures program. DH Spica program has major factors taken into consideration in risk management. Risk Management Features: 1) Downside and Draw Down control; 2) Fixed maximum exposure per strategy in order to avoid risk concentration; 3) Weekly rebalancing of the number of contracts per strategy in order a) to strictly maintain risk profile, b) to dismiss strategies that show behavior different from what expected, c) to optimize capital growth; 4) Strategies are reviewed weekly on quantitative basis and quarterly on quantitative and qualitative basis; 5) Overall portfolio returns are daily checked for consistency with the expected return’s behavior. Risk management tools: 1) Single trade level (each trade has its own stop loss order). Stop levels are computed in order to not exceed the risk amount allowed to that trade. Less that 1% of losing trades are closed with a stop loss order; 2) Single strategy level (each strategy has typical returns behavior). A specific maximum drawdown is computed for each market-strategy couple. If the drawdown should be exceeded, the couple would be excluded from active portfolio. It would be reinstate as soon as the strategy restores from drawdown; 3) Overall portfolio level (risk monitoring process on critical situations) Single strategy control is needed to uncover situations in which the strategy is no longer able to profitably trade a particular market. But there could be situations in which the overall portfolio returns don’t follow the expected behavior. A particular risk monitor focuses on this aspect in order to uncover critical situations for the overall program. This control is the only one that could force the entire system to stop trading. The same control, if this should be the case, continues to monitor system’s returns in order to give the signal to start trading again. It is possible to stop the system and completely liquidate positions in few hours.