By Jorge Maestro.
X MAS 2 has its origins in a hard research work, using the best Anglo-Saxon bibliography on Automatic Trading Systems and counting on the inestimable help from José Luis Cárpatos and Gloversia, which is the home of the SICAV. Later we looked for an idea that could work for what we were looking for and that we will explain later. Later we began the search for a programmer who could put into practice and scientifically test if that idea was a winner or not and with that the first year of life of this project was fulfilled.
2 YEARS PREVIOUS WORK
We were with the programmer for approximately 3 months to finally discover that we had to learn to program ourselves if we wanted to control 100% of the project, carrying out a programming course in EasyLanguage, which is the programming language of Tradestation, the platform with which the System behind X MAS 2 ALGORITHMIC SICAV has been designed.
Many hours invested in the course and in reprogramming the system from scratch are to blame for the fact that, more or less, in August of last year the algorithm. A few weeks later the commercial presentation was ready and they began to speak with potential interested parties. With this we arrive at year 2 of the project, hence the name X MAS 2.
AUTOMATIC TRADING SYSTEM
Throughout all this time, the benefits of Automatic Trading Systems have been discovered. Far has been that operation by technical analysis, by sensations, often guided by fears, by euphoria, abandoning trading many times after a bad streak and without finding the continuity and serenity necessary in this world. This is where the main advantage of Algorithmic Trading.
When you have a correctly designed winning strategy: logical and simple system, with few trading rules and that works well in uncorrelated markets, in a wide range of parameters and in different market conditions (versatility and robustness) and you keep it updated over time (there are statistical tools for this) you have the certainty that you will continue to obtain, in the medium-long term, a performance very similar to that obtained in the past. But beware, that does not mean that you can rest on your laurels, there is always work to be done, testing new underlying, trying to statistically improve the system, etc.
DRAFT
After this small introduction, which we have considered necessary to do as a way of disseminating what it can be (in time and effort) to carry out a project from 0 to 100 of this type, we will comment on the most important characteristics of X MAS 2 ALGORITHMIC SICAV (Deltahorro at present, in the process of change).
The fundamental pillar on which everything revolves are the ideas of Absolute return and uncorrelation with the rest of financial assets. The SICAV was not intended to be the typical financial instrument that gains from market rises, but loses from falls. Of those there are many. What was sought is a vehicle suitable for all audiences, a financial instrument that would give a reasonable return for a highly controlled risk and regardless of the direction of the markets. Something like a piggy bank, with its good and bad moments, but that at the end of the year always gives an attractive return for the risk assumed, that wins recurrently.
How do you get that? The answer is very easy, as well as very complicated: doing things differently from others. Why settle for just winning when markets go up if we can also win when markets fall? There are instruments for this, which are the ones we use at X MAS 2 ALGORITHMIC SICAV. Not everything is as beautiful or as easy as it seems: going short (bearish) of Equities and that the market rises is not a dish of good taste, especially if you compare yourself with the rest of investments that clients usually have, for putting a example. But hey, in order to have a different result we need to do different things from others. Our advantage is that we are not linked to any Benchmark and that, therefore, we can implement our strategies freely.
To achieve our objective of absolute return, the SICAV has Bullish and bearish strategies in Equities (approximately 50% of the portfolio) and Raw Materials (approximately 25% of the portfolio), while Bullish strategies in Fixed Income (the remaining 25%), although in the future we do not rule out also implementing downward strategies in Fixed Income if the current situation of low rates comes to an end. As we said before, we can introduce changes in the SICAV if the situation requires it.
Making a backtest of the strategy during the last 14 years we have the following monthly net returns:
This supposes a Net annualized return of 5.38% with volatility of 5.22%. As we can see in the table above, we only have 2 negative years (2007 and 2015, with very small amounts), so 86% of the years we achieve positive profitability; in monthly terms, 65% of the months we obtain positive profitability. At the same time, in years of market declines such as 2008 or 2020 (before the strong rebound of the Stock Exchanges), the strategy is capable of generating positive profitability, mainly thanks to the shorts in Equities but also to the rises of Raw Materials.
This is the true added value of the SICAV, the uncorrelation with the rest of the financial assets and the pursuit of the Absolute Return (it is fulfilled in 12 of the 14 years tested) keeping the risk under control. It’s a product that we believe fits perfectly with what the Spanish-type saver asks for, which is a moderate profitability (what it achieved in the good times of fixed terms) with controlled risks.
How can the SICAV have a volatility of just 5%, being able to invest up to 75% in volatile assets such as Equities and Commodities? Easy, the algorithm only gives us input when it detects a certain trend in the underlying, remaining the rest of the time out of the market. This means that of the 10 strategies that we have in our portfolio, we rarely have more than 5 of them at the same time, the rest being in liquidity. With the current environment of rates (current accounts and fixed terms give 0%) we cannot make profitable all that liquidity that we have in our portfolio, but in the future, when rates rise, we will be able to obtain an important “free” return , which we can add to the profitability seen above.
In addition to the aforementioned, in the SICAV we have a strict risk control, with 2 types of exits in the positions we take: the logical exit of the system and a trailing stop due to volatility, the first one that occurs. In other words, the system has been designed not to hold one position longer than necessary. In fact, the average duration of the winning trade is 25 days, while that of the losing trade is 6 days.
Below are illustrative graphics showing the Asset Allocation type (weight of each asset in the portfolio) of the SICAV and its Performance Attribution associated (what each asset has contributed to total profitability):
It is only as an indication, we can slightly change the percentages of the Asset Allocation if the volatility in some asset increases too temporarily, etc.
As can be seen in the Asset Allocation, the SICAV’s positioning in terms of Equities is 0-30% bullish strategies (S&P 500, Nasdaq 100 and Nikkei) and 0-30% bearish strategies (Dax and Nikkei, which we use indistinctly for long and short ). This means that, in strongly bullish years of the Stock Exchanges, the maximum position in the Stock Market that the SICAV would have would be 30%, with which the profitability of instruments that are more positioned in the Stock Market will be notably higher. Although, that is not our objective, this is to have a vehicle with a low and controlled risk and, at the same time, to achieve a profitability that compensates that risk assumed.
Last but not least, comment on an important aspect: the alignment of interests between the people involved in the project and the rest of the investors. This alignment can be verified by the fact that the SICAV’s success commission has a watermark (High Watermark) that means that the vehicle does not accrue any success commission if its Net Asset Value is below the level it has already incurred. in the past on some success commission. In this way, the investor is prevented from paying 2 or more times for the same success commission. It is a common practice of hedge funds that we have also wanted to include.
The performance Since the beginning of the counseling (February 10, 2021) it has been the following:
During the months of February, March and April we have attended a rather lateral movement from the assets on which we have strategies, an aspect that does not benefit us as ours is a trend system. We have also been in a higher percentage than usual in liquidity since there are several strategies that during these 3 months have not given us entry (Bund, Tnote, Gold and Dax), therefore the volatility of the SICAV is at 2% when the normal thing is that it was in figures close to 5%.
In this month of May We have caught the upward movement of gold and silver, which is bringing us benefits. We expect a more trending movement of assets in the future, a movement that we will undoubtedly capitalize on with our system.
HOW TO INVEST
Provide your bank or regular broker with the following information:
Name: Deltahorro (approved the change of name to X MAS 2 ALGORITHMIC SICAV) ISIN code: ES0125901035 SIBE code: S0764 Market: BME Growth Type of order: At net asset value Number of shares or amount to be invested
Jorge Master
