SMN Investment Services GmbH : smn Diversified Futures Fund (1996)

Summary

The smn Diversified Futures Fund is a fully systematic long-term Managed Futures Fund (CTA) capitalizing on market divergences in a broad range of global futures markets. The systems investment and risk management decisions are based on market directionality, inter market relationships, volatilities, long and short term market/position correlations and the overall risk regime. The funds main differences to a standard long term trend following approach are: - Focus on maximum level of diversification. Meaningful exposure to smaller markets, commodities and synthetic markets - Active reduction of portfolio risk concentrations through the use of short term correlation data - Dynamic Risk budgeting based on the overall market risk regime

Investment Strategy

All systems traded by our company are proprietary. SMN Investment Services started trading the SMN Diversified Futures Fund in Oct. 1996. Two classical trend-following systems were used till January 1999. These systems were developed between 1990 and 1994. These systems used profit targets and volatility blockers. In January 1999 the systems were redesigned and a third system (same methodology, but shorter time frame) was implemented. The new strategies did not use profit targets anymore and concentrate more on fat-tail-events. In Mai 1999 a new intraday trading approach was added. In May 2001 a new risk management methodology was introduced. Positions are reshuffled based on market volatility in order to keep risk constant during trades. In August 2001 one of the three long-term systems was redesigned. The goal of the new system was to reverse more quickly in trend reversals in order to act as a hedge against the two longer-term systems. In August 2002 we changed the methodology in our intraday approach substantially. The new methodology filtered out about one third of all trades. These trades turned out to be negative and they occurred in similar market situations. In November 2003 we implemented the selective trading approach. It consisted of several systems that tried to exploit mostly short-term market inefficiencies. In contrast to our classical trend-following approach this approach was trading not very often. In November 2006 we dismissed all strategies with a short-term trading horizon due to fundamental changes in market behaviour. Moreover we added a substantial amount of new Currency and Equity Index markets.In November 2007, a risk overlay system was implemented.

Risk Management

The trend-following portfolio consists of more than 200 markets in different market sectors. Markets are selected to represent a geographically balanced portfolio across different asset classes, with liquidity being the main focus. Different Systems trade these markets in order to capture different trend lengths. Each signal has a predefined risk exposure where correlations between markets and sector exposure are the main function inputs. Market volatility and the fund’s total equity are also part of the function. If the target exposure changes, open positions are reshuffled in order to keep trade risk constant.