Signal Research & Trade

Energy & Financial Program

Minimum Investment
Management Fee 0.00%
Performance Fee 0.00%


-The managed account programs offered by Signal Research & Trade Ltd are available to Qualified Eligible Participants only. Performance Note Signal Research & Trade Ltd. began managing client accounts in March 2003. Prior to that, the principals of Signal managed a systematic futures trading program inside of TransCanada Energy Ltd. (a subsidiary of TransCanada Corporation; NYSE:TRP) from 1995 to 2002. The performance table presents the monthly returns for Signal's Energy & Financial Program for both client and proprietary accounts managed by Signal and its principals. For the period March 2003 to present, the monthly returns represent a client account managed by Signal which includes a 2% management fee and 20% monthly incentive fee. From June 1996 to November 2002, the monthly returns represent an account managed by the principals of Signal on behalf of TransCanada Energy Ltd. while they were employed with the company. That account, though not owned by Signal or its principals, is deemed to be "proprietary" pursuant to CFTC and NFA regulations. Returns for this period include pro forma fees (2% management fee and 20% monthly incentive fee) and pro forma notional funding to equalize leverage (margin-to-equity ratio) at 15%. There are no monthly returns for the period December 2002 through February 2003, during which time the principals of Signal were transitioning out of TransCanada Energy Ltd. It should be noted that during the period March 2003 to present, the client account being managed by Signal (which is a commodity pool) has at certain times included a capital allocation from TransCanada Energy Ltd. (the prior employer of Signal's principals). In particular, TransCanada Energy Ltd. made the initial capital allocation to the commodity pool being managed by Signal at the time of its formation, with a commitment to leave that capital in place for a set period of three years in order to help facilitate the startup of Signal. The decline in Signal's assets under management from 2004 to 2006 is reflective of TransCanada Energy Ltd.'s staged withdrawal from the commodity pool in keeping with its original commitment. It should also be noted that during the period March 2003 to present, a variable percentage of the interests held in the commodity pool being managed by Signal have been owned by principals of the Trading Advisor. In particular, as of January 2006, a greater than fifty percent (50%) interest in the commodity pool was owned by certain of Signal's principals. The Trading Methodology Signal Research & Trade Ltd. is a systematic trader. Signal's trading programs consist of multiple, independently traded strategies (trading systems) designed to capture directional price moves across multiple time horizons. In shorter term time horizons, the Trading Advisor employs various momentum or break-out based trading systems designed to capture price moves lasting anywhere from 2 to 10 days. In intermediate term time horizons, the Trading Advisor employs various trend based trading systems designed to capture price moves lasting anywhere from 10 days to several months. In certain market environments, positions held in one strategy will be offset by positions held in another strategy at either the individual contract level or within a market sector. This is most often the case during periods of market consolidation and during major turning points in the market. This multi-system/multi-timeframe approach helps Signal to moderate the overall volatility of its trading program and is an important underlying element of its broader risk management strategy. The Energy & Financial Program offered by Signal consists of a portfolio of trading systems traded across several market sectors including: energies, stock indices, fixed income and currencies. It should be noted that Signal also offers a stand alone energy program (the Energy Focus Program) which consists of a portfolio of trading systems traded across several energy markets including: crude oil, gasoline, heating oil and natural gas. Further detail regarding Signals' Energy Focus Program is available upon request including the extracted performance record for the program. Risk Management Signal's risk management strategy is applied at two stages within the development and management of its trading programs - the program design stage and the portfolio management stage.

Risk Management at the Program Design Stage: Signal incorporates a number of key risk management elements into its trading programs at the research and design stage. In this way, the risk management disciplines become structurally embedded into the trading programs. The work begins at the individual trading system design and development stage. Signal uses a myriad of parameters and statistical measurements to evaluate and critique the risk attributes of each individual trading system that is being considered for inclusion in one of both of the trading programs. The analysis includes assessing such things as system drawdown profiles, variability of trade profit/loss, stop loss exposure, exposure to execution slippage and curve fitting risk. Risk management is also a key consideration in determining which futures markets and which trading systems are to be included into the design of each trading program. Signal's goal at this stage in the design process is to ensure that risk management is structurally built into the program through proper diversification. Diversification must not only be achieved across markets, but also within markets. To that end, Signal dedicates significant focus toward determining how to combine different trading systems at the individual contract level and the market sector level. Signal believes that trading system diversity at the individual contract level and market sector level is a critical risk management discipline. By combining trading systems at the individual contract/market sector level that use different parameters and underlying trading rules for market entry and exit, Signal believes its trading programs are better positioned to maneuver through periods of market consolidation or through major turning points in the market, resulting in an improved overall risk/reward outcome. Risk Management at the Portfolio Management Stage: Signal's ongoing portfolio management process dictates the overall portfolio sizing for its trading programs, as well as the specific allocations set for each individual contract market and each trading system. From time to time, Signal will make changes to the portfolio sizing and portfolio allocations based on risk management considerations. Signal thinks of this component of its risk management strategy as its risk management overlay. Signal's risk management overlay is focused on the monitoring and management of risk at the overall program level. Signal uses a variety of metrics by which to measure and assess the ongoing risk of its trading programs. The two primary measures used by Signal are earnings volatility (which measures the degree of variability in daily returns over a specified time window) and program stop exposure (which measures the amount of capital at risk each day should all open positions be stopped out). The goal of Signal's risk management overlay is to manage the longer term earnings volatility of its trading programs to a targeted level of volatility. For the Energy & Financial Program, Signal has established a benchmark annualized volatility target of 20%. In shorter time periods, Signal expects that the earnings volatility of its trading programs will expand beyond the targeted levels. Such increases in earnings volatility are typically associated with significant directional price moves in the market, and as such are usually associated with an increase in account equity. In certain select cases where earnings volatility expands significantly beyond targeted levels and where program stop exposure is relatively high, Signal may take steps to reduce the program exposure. This is accomplished by reducing the prescribed portfolio sizing. It is possible that during periods of reduced portfolio sizing, the program returns may be reduced relative to the returns that would have been realized had portfolio sizing not been reduced. It should be noted that Signal's risk management overlay is implemented on a selective basis (fewer than 15 times per year historically). Signal's philosophy with respect to the earnings volatility of its trading programs is that it is something that needs to be carefully tracked and selectively managed. Signal believes that "over managing" earnings volatility can greatly reduce the upside potential that is inherent in its style of trading. Background of Principles Michael O'Brien: Michael O'Brien is the president, founder and principal shareholder of Signal. He is registered with the CFTC as a principal and associated person of Signal and is a member of the NFA. He is also registered with the Alberta Securities Commission as a Portfolio Manager/Investment Counsel. He holds a Bachelor of Commerce degree from the University of Calgary (1987), where he graduated as the Faculty of Management Gold Medal recipient. Mr. O'Brien has worked in the futures industry since 1987 and brings more than 18 years of experience to Signal in the areas of futures and options trading, risk management and trading room operations. He started his career in May 1987 at Northridge Petroleum Marketing Inc., a leading edge North American oil, refined fuels and natural gas marketing and trading company based in Calgary, Canada. In his seven years with Northridge, Mr. O'Brien was responsible for setting up and managing the company's commodity hedging department and overseeing all energy futures, options and derivatives origination and trading activities. In August 1994, Northridge was acquired by TransCanada Energy Ltd. (a subsidiary of TransCanada Corporation - a leading North American pipeline and power company: NYSE:TRP). Shortly after joining TransCanada, Mr. O'Brien was granted approval from management to launch an in-house systematic futures trading program based on extensive research and development work carried out while at Northridge. For the next eight years, Mr. O'Brien remained with TransCanada where he was responsible for the continued development of the company's systematic futures trading program, growing assets under management to over $10 million. In December 2002, TransCanada agreed to sell the rights to the trading program (including all track record documentation) to Signal. Mr. O'Brien and several of his colleagues subsequently resigned from TransCanada in order to join Signal full time. Mr. O'Brien is currently involved in all aspects of Signal's business, with his primary areas of focus being system and portfolio research, portfolio management, compliance and client relations/marketing. In addition to Mr. O'Brien, Signal has three other full time staff covering research, trading and operations. Biographies for Signal's other staff members are available upon request.