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Altana Wealth launches Directors’ Dealings Systems Fund

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Altana Wealth has launched a new UCITs fund, The Altana Directors’ Dealings System Fund (ADDS), which is now open to external investors.

The fund tracks the short term opportunistic buying behaviour of company directors in US liquid listed companies and replicates the best 0.5% of their trades. Rigorous back testing of the system shows that during the period 2003 to 2014 ADDS significantly outperformed the S&P 500 index. The strategy has already attracted significant investor interest including a large external cornerstone investor.

The strategy has been running live in a (non-UCITS) wrapper since November 2014 and recorded gross returns of +2.83% in November and +5.23% in December. From April 2014 to October 2014 the strategy was run with internal capital also giving very impressive results.

The unique system uses a sophisticated algorithm, which tracks public filings made by Directors or significant shareholders of US listed companies with a market cap in excess of USD250 million when they have invested in their own company. The system then applies a behavioural tracking logic to extract the most potentially interesting purchases, using a wide criteria to identify the short term opportunistic purchases by said directors.

Commenting on the Fund, Lee Robinson, founder and CIO, says: “Since 1968 academic literature has supported the theory that directors know best, as they make more informed decisions based on more and more KPIs, which are now approaching near real time information.  ADDS is based on a sophisticated algorithm that captures publicly available filings to isolate the short term opportunistic buyers.

“The stock selection is fully systematic and the stock purchases and subsequent portfolio management is extremely process-driven. Stocks have a seven to 30 day holding period and pre-defined stop losses. As a result, the fund can outperform the market several times in a bull market whilst de-correlating from it in a bear market with significantly lower drawdowns. The US market specifically lends itself well to the strategy, given it’s a well regulated, established stock market with significant size and trading volume.”

The Fund has a built-in robustness check to ensure the validity of the proposed trades. Although the stock selection is fully systematic there is a sense check performed by a separate portfolio manager before any trades are executed.

The ADDS filtering stage can be categorised by four steps:

• SEC Filings: ADDS automatically retrieves all SEC “Form 4” filings on a daily basis
• Pertinence check: ADDS runs through a proprietary database of Director trading behaviour to filter out pertinent directors’ dealings through behavioural analysis and cross-checking
• Scoring: Using more than a dozen criteria, including financial, sectorial and behavioural characteristics both historic and current the pertinent trades are scored
• Alerts: Only the very top 0.5% scoring SEC filings are registered as Alerts and sent to the portfolio.

Robinson adds: “We have seen significant interest in this fund for a number of reasons. First, it’s a simple but compelling investment strategy and many investors can relate to the idea of following directors when they invest with their own money. Next the performance is strong, with an average (through back tests and out-of-sample results) of above 40% over the past 10 years with below average volatility levels. Although it is process driven it does not require high frequency trading, is not levered and therefore avoids risks associated with that style of strategy. Finally, it has a human oversight and built in risk management overlay from an experienced and established investment platform here at Altana.”

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