W.G. Wealth Guardian Ltd. : Strategic Enhanced SP500 Program (SESP)

Summary

The Strategic Enhanced SP500 Program (SESP) is designed to improve upon traditional long-only investment vehicles - using the S&P500 index as a baseline - by smoothing or even enhancing performance during range-bound periods as well as market shocks. The program combines a long equity element with momentum and spread arbitrage methodologies in specific market volatility instruments that enable improved risk management and in turn superior returns. The strategy has been formalized into an automated system, thereby eliminating human intervention and ensuring unencumbered operation. The system attempts to produce consistent returns in varying market and volatility environments that have little or no correlation to traditional and alternative strategies alike. This makes it a valuable component of any multi-asset class portfolio as it can greatly reduce overall volatility. The strategy was developed by investment professionals by utilizing the expertise and knowledge gained through years of trading and market observation.

Investment Strategy

SESP comprises 3 elements. At the heart of the program is a core long equity component. This is then complimented by our existing GVRP volatility trading program. Finally, SESP adds a defensive mechanism that detects sharp market falls in order to mitigate short-term adverse performance. In this way, the program attempts to emulate the returns of a long-equity investment but with the poor performance during periods of sideways markets and downturns mitigated or enhanced. GVRP excels in taking advantage of range-bound markets to generate consistent income. At the same time, the strategy is inherently long gamma and has the capability to capture increasing returns during market turmoil and selloffs.

The defensive mechanism uses momentum and market psychology methodologies in an attempt to detect the early onset of sharp market downturns. In case of a trigger, the mechanism puts the portfolio in a defensive stance by taking protective measures against the long equity component. Although the trigger occurs infrequently, the mechanism can be vulnerable to false breaks that do not develop into significant market drops. In this case, the program would detect a false break and revert the portfolio into a normal stance. The program is then able to enhance the traditional long-only portfolio. The methodology is conceptually driven and based on quantitative analysis of statistical information. The program participates in the long element of the market and the other 2 components lie in wait for the correct opportunities to augment the portfolio returns. Therefore, the strategy can potentially profit in many different types of market environments – be it market lulls, rallies or sharp declines. SESP can provide excellent diversification and hedging potential, not only having very low correlation to traditional investments such as stocks and bonds but also to the alternative investment world.

A more detailed description of the program can be found here:

https://www.iasg.com/en-us/groups/group/w-g-wealth-guardian-ltd-/program/gamma-volatility-ratio-program-gvrp-

Risk Management

The strategy was conceived conceptually (as opposed to data mining) with risk management at is heart. The means that risk management is inherent in the selection and execution of trades rather than placing limits that disregard the current character of the market. Traditional markets and strategies are typically vulnerable to shocks while most strategies classified as alternative are vulnerable to periods of sideways/range-bound movement. This strategy attempts to outperform by emulating the returns of a long-only vehicle but mitigating the drawdowns during downturns and range-bound periods. By utilizing strategic countermeasures and by taking advantage of gamma convexity, it is preemptively protected against sharp market downturns. At the same time it reaps returns during periods of low volatility and sideways movement.