W.G. Wealth Guardian Ltd. : QT Program (QTP)

Summary

The QT Program (QT) is a medium-to-long-term systematic trading program that trades a select portfolio of futures contracts. It is a long-short program and currently trades 10 of the most liquid futures contracts - spanning the currency, bonds, stock index, commodity and volatility sectors. With the exception of the volatility product, the program is always invested in every market. The strategy attempts to capture medium-to-long-term directional movement through a combination of statistical and technical analysis that identifies market direction. QT was designed to be closer to trend-following in nature and follows market action more broadly. The program seeks to provide superior risk-adjusted returns whilst minimizing drawdowns in this systematic category.

Investment Strategy

The strategy is primarily driven by momentum indicators which determine market direction. Trend analysis is performed through a statistical determination of a combination of oscillators and moving averages. Market data is sampled at regular intervals throughout the day to determine the continuation of the current trend or a change in the trend. The objective of the strategy is to profit from long-term and significant directional market movement. Therefore, the trend analysis is necessarily expansive to avoid excessive signal generation in congestive markets and yet must trail market turns closely enough to maximize the profit window - a delicate balance is required. A simple and unobtrusive filter is used to confirm a change in market direction before a new position is taken. Consistency, robustness and low margin-utilization are also key features of the QT program. The strategy was created and developed by investment professionals with over 50 years’ combined trading experience using observable market behavior and statistics.

Risk Management

Hovering in the trend-following category, the QT program will be more prone to false signals in congested markets and can potentially suffer longer drawdowns from false breakouts. The strategy attempts to counter this by applying a volatility-based filter to corroborate a change in trend. The filter has a small in-built lag to allow for false breakouts before confirming the signal. When a strong trend is determined, the strategy systematically increases position size with a dynamic profit target that is adjusted to market conditions. This “booster” attempts to increase profitability in a low-risk, short-term window in a trending market. A low leverage, low margin-to-equity ratio approach is adopted from the outset, consistent with the investment ethos of the other trading strategies under management. The strategy does not use any traditional hard stops but dynamically transitions to changing market conditions following directional changes. The program also has an embedded portfolio limit threshold that once triggered will initiate liquidation of the entire portfolio. This only occurs rarely and under extreme market conditions. The mechanism takes into account both individual and collective market volatility and correlation risks and when an extraordinary level is detected all open positions are closed out. This automated process also determines when the portfolio can then be reinstated once the volatility and concentration risks subside.