Hedge-House Partners LLP : Hedge-House Hormesis Fund

Summary

The Hedge-House Hormesis Fund A plain vanilla global macro fund offering weekly investor liquidity. The strategy has been successfully traded since 2003. The strategy has demonstrated low correlation with major benchmarks. Combines fundamental, quantitative and technical analysis with a short term trading approach. Capital protective, tight risk management at an individual trade level and on the portfolio as a whole limits downside. Low leverage. Trades only liquid listed instruments within the developed world (Global futures, options on futures and equities). Trades 4 main asset classes - stocks and equity indexes; bonds; currencies and commodities. The fund manager is a Contrarian in nature, allowing the fund to place trades with the best risk/return potential.

Investment Strategy

The Hedge-House Hormesis Fund follows a plain vanilla low leveraged contrarian macro strategy trading only liquid listed instruments within the developed world. Global futures, options on futures and equities are traded within 4 asset classes: bonds; equities/equity indexes; currencies and commodities. The core futures strategy typically invests in up to 8 diversified macro themes across 46 markets at any one time with average holding periods of 7 to 14 days. Initial position sizes are typically between 25% and 75% of NAV, with stop losses implemented at trade inception of between 0.25% and 0.75% of Fund NAV. Capital preservation is further enhanced by drawdown protection on the portfolio as a whole, which seeks to limit monthly losses to 5%. The Fund launched in March 2009. Prior to this the strategy was successfully traded by the fund manager since 2003, generating a historic Sharpe Ratio of 3 and volatility of under 10%.

Risk Management

Tight individual position drawdown limits, systematically implemented at trade inception, limit losses per trade to between 0.25% and 0.75% of Fund NAV. Trade losses are further constrained and profits protected as a trade progresses along its profit target. Where a trade has reached 50% of its profit target, its stop losses are moved to ensure a minimum of a break even for the trade. The portfolio as a whole is protected by diversification of positions across markets, time horizons, asset classes and geographical regions. The portfolio is further protected by monthly maximum drawdown targets of 5% of NAV. Individual position sizes are restricted to a maximum of 10% of the open interest or 20% of daily trading volume. Risk management, as well as being part of the trading process, is also monitored, in real time, on an independent basis. Trades are booked directly by the fund manager into our proprietary portfolio engine. Corresponding Stop Losses are enforced on trade entry. Each time a trade is booked, or amended, an email is systematically distributed to the Risk Team. The email contains a report detailing: Position size (individual and total) as % of fund NAV Position size (individual and total) as % of daily trading volume Contingent orders (stop losses) as % of fund NAV Price alert emails are systematically distributed when market prices on open positions pass predetermined stop loss contingent orders for which no fill has been received. These continue to be generated until the stop loss order has been filled. Daily trade recap emails are received at the end of trading day and open stop loss order recaps at the beginning of each day. Daily operations procedures ensure that these are reconciled to completed trades and open stop loss levels on our portfolio engine. The Risk Team has direct access to real time PnL and exposure reports, which they access routinely throughout the day.