Salus Alpha Capital Ltd : Salus Alpha Directional Markets (DMX)

Summary

The Directional Markets Strategy is fully systematic and invests in up to 100 global futures and forward markets. A statistical approach with a daily feedback system based on forecast quality is used to determine the signal (long or short) as well as position size. With 250 trading days a year and 100 markets, this produces 25 000 forecasts a year, which is statistically significant. No technical analysis is used. The better the forecast quality the more trust is put into the forecast, and the more aggressively the target weights per market are adjusted. Due to the mechanics of the daily forecasts, the system is adaptive to changing market environments and can switch between short to long term as well as trend following and contrarian. The strategy targest a return of 15-20% p.a. with a volatility of approximately 10% p.a. Analog execution technology delivers no market price impact and high strategy capacity. The model exhibits on the long run significant more upside with less downside than other CTA's / managed Futures programs.

Investment Strategy

A statistical approach is used to forecast prices. Due to the mechanics of the daily forecasts and the feedback system of forecast quality, the model is adaptive and is capable of switching between time frames, i.e. short to long term, and strategies, i.e. trend following and contrarian. Daily price levels are forecasted based on historic prices. With 250 trading days a year and 100 markets, this produces 25.000 forecasts a year, which is statistically significant. The better the forecast quality in an environment for individual markets, the more trust is put into the forecast, and the more the target weights per market are adjusted.

Risk Management

Detailed and extensive risk management – special attention in case of increasing volatility. Within the DMX the risk management is carried out at position, sector and portfolio level. Too high levels of volatility of the returns of a position lead to the under weighting of this position. Too high levels of volatility of the returns of a sector lead to the under weighting of this sector. In case the volatility of the DMX fulfills the self-chosen criteria, the risk on portfolio level is limited. The positions in DMX are entered automatically and are assessed daily in regards to the defined risk parameters of position size, diversification and volatility. Before being executed orders are being assessed for potential crossings of thresholds and corrected accordingly thanks to a sophisticated IT system.