Goldman Management, Inc : Stock Index Futures (Prop)

Summary

GMI’s multi decade mission has been to quantify the inputs and drivers that directly and indirectly control equity prices. The mission is to discover all quantitative factors than in particular environments provide predictive forecast for stock prices. Once identified, a driver is deconstructed and tested at inception and on an ongoing basis, leading to an evolving and robust system. Differentiator One way to differentiate myself from other CTA’s is the through very limited use of leverage. The program is often leveraged less than 1:1 and rarely more than 1.3:1. My alpha is not derived from leverage or diversification, but from my entry and exit points. Two key alpha factors are to identify low risk entry points and then risk management with regard to the exit. By limiting leverage I expand my possible trading bands and avoid potential pitfalls that will produce false signals and unnecessary exits and poor entries. From 2002 to the present, the S&P is higher by 2% per annum VS GMI‘s 14% per annum gains with a beta at .45 or roughly a 13% per annum alpha return.

Investment Strategy

The Advisor is offering Clients the opportunity to participate in managed account program, which seeks capital appreciation of Client’s assets through speculative trading in stock index futures. There is no representation being made that these programs will be successful in achieving this goal. Using quantitative analysis hundreds of indicators and several dozen models are employed. Many of these indicators have been tested though market cycles dating back to the early 1900’s and include both technical and fundamental analysis. Alignments in the groups of indicators at inflection points determine the direction and the potential magnitude of the outcome to stock prices. Categories in which these indicators fall into are numerous and although not exclusive are as follows: the stock market structure, momentum, overbought and oversold, market sentiment and contrarian tools, valuations, monetary environment and macro factors. Each of these categories has different forecasting values and timeliness. Combining groups of indicators into an overlay can enhance the reliability of a signal. The models and indicators are also used to identify in advance the market climate likely to be encountered, whether trending or range bound, enabling the principle objective of GMI which is to profit from all types of markets while using strict control measures to minimize risk. Analysis and research to improve systems and strategies is an ongoing process. There is also a veto power on the indicators and models, which may be implemented during unique circumstances to potentially reduce risk.

Risk Management

Risk Management 1 –Risk and leverage are dynamically managed by varying exposure levels in accord with signal strength. 2 –Alignment, when numerous models from different categories are aligned a larger risk band and larger profit objective are deployed. 3- Equity curve and gains/drawdown dictate an adaptive strategy to expand or contract risk. 4- Risk process is ongoing throughout the trading day as well as end of day. Essentially a dynamic risk management program that employs the relative strength of the trading signals, the amount of leverage being utilized, and finally my discretionary overlay to constantly manage risk and volatility.