Kronos Management, LLC : Awakening Program (Proprietary)

Summary

The Awakening Program is a discretionary long/short managed futures program. It relies on the understanding of fundamental drivers of commodity cycles and their asymmetrical risk profile to generate absolute return. Macro fundamental research and trend following are the bedrock of the strategy. Technical inputs complement the program by momentum and entry/exit point analysis.

Investment Strategy

Based on the belief that simplicity is the antidote to complexity, the program evaluates trade opportunities using a few robust variables including supply/demand fundamentals, macroeconomic conditions, prevailing bias, technical analysis, and special events. Trade horizons are typically short to medium term, directional in nature, with outsized reward-to-risk ratio providing the basis of the trade. Where appropriate, position and portfolio risk management is accomplished by a combination of correlation shift monitoring, cross hedging, loss/profit objective management, and sentiment monitoring in order to mitigate against counter-trend movements and tail risk events. Careful consideration is given to portfolio construction to avoid risk concentration and to ensure effective hedging.

Risk Management

Risk Management starts with trade implementation. An asymmetrical risk profile is paramount to success. A typical trade setup has three elements: fundamental tailwind, a good trend, and a favorable sentiment. Risk has two components: likelihood and consequence. To access the risk/reward of a position, whether initiating a new position or maintaining an existing position, it is critical to estimate both factors. A 50/50 shot typically needs at least a 1.5 reward to be considered. The expected value of a trade serves as a basic guideline to position sizing. The Simplicity Program uses a risk ranking matrix to calculate the Favorability Index, on which decisions are guided. This matrix takes into account macroeconomic conditions, supply/demand/storage, prevailing bias, seasonality, price actions, and weather/political events. Where appropriate, position and portfolio level risk management is accomplished by a combination of correlation shift monitoring, inter-commodity hedging, loss/profit objective management, and sentiment monitoring in order to mitigate against counter-trend movements and tail risk events. Careful consideration is given to portfolio construction to avoid risk concentration and to ensure effective hedging in different macro economic environments. Typical range of margin/equity ratio is 5% to 20% including hedges.