Lynx Asset Management AB : Lynx Program

Summary

The Lynx programme is managed by Jonas Bengtsson, Svante Bergström, Anders Holst, Jesper Sandin and Henrik Johansson. Lynx Asset Management was founded in 1999 and the Lynx Fund started in May 2000. The offshore vehicle, Lynx (Bermuda) Ltd., was launched 1 April 2004.

Investment Strategy

Lynx’ main approach is systematic trendfollowing applied to a broadly diversified portfolio of markets. Further diversification is achieved by using models over multiple time frames, with holding periods varying from a couple of hours up to a year or more. The programme also trades contrarian models in an attempt to achieve better risk-adjusted returns and enhance performance in a non-trending market environment. Intermarket models use other inputs than the price in the market itself. There is also a short-term module where trades are held from a few hours to a few days. In aggregate, these models are used to make quantitative analyses of price fluctuations on the market. They are designed to identify market situations in which there is an enhanced probability that future price changes will be in a certain direction. By using different models in conjunction with each other on each market, the programme can generate a more stable risk-adjusted return than a pure trendfollowing strategy. The implementation of the programme is fully systematic. The proprietary models generate buy and sell signals that are executed directly in the electronic markets using internally developed algorithms. The trading desk is staffed 24 hours a day, making sure that all the systems are functioning properly and that signals are valid and executed correctly. The quantitative and systematic approach enables Lynx to make extensive analyses of market relationships, and have an opinion on the direction of a large number of different markets. It also ensures a consistent approach, typically without any bias of being long or short in the markets. Given that the strategy trades only liquid instruments, the approach can adapt and change exposures when market sentiment changes. CTAs in general and Lynx in particular have historically performed well in volatile markets and during equity market crises, periods where risky assets and other hedge fund strategies have struggled. Lynx holds the view that the way markets function will change over time. Consequently, it is important to carry out continuous research to improve the models used in the asset management process. Lynx has a large team of researchers, whose task it is to develop new strategies and models to be used in the programme.

Risk Management

Risk management is an integrated feature in the investment process and Lynx focuses on diversification and portfolio construction. Around 70 futures markets are traded across four sectors; equity indices, fixed income, currencies and commodities. Position sizes are determined based on correlations with other markets. The models operate independently and the portfolio is built “bottom-up” based on the signals from each model. Minimization of each investment’s loss is integrated in the design of the models e.g. by using automated stop-loss mechanisms. As a result the risk utilization in the programme changes dynamically over time, limiting drawdowns. Value-at-Risk is used to limit position concentration and risk levels. Three parallel VaR-models are monitored in real-time by the trading desk and there are limits on instrument, asset class and total portfolio level.