Lately it seems the world is jumping from one crisis to the next. We’ve gone through pandemic, upsetting our daily lives, to natural disasters, and, closer to us, the war in Ukraine has triggered global economic and investment risks. While everyone’s financial situation is different, it is true that people building their financial future with resilience in mind tend to fell less emotional distress generated by hard financial times. The more resilient their portfolio, the better investors are able to tolerate the feelings of stress and anxiety that accompanies those more challenging times. This is the reason why we’d like to place the emphasis of today on our most resilient strategy : Elite Crypto Market Neutral.
Elite Crypto Market Neutral Perspectives : A time when resilience matters
Elite Crypto Market Neutral was designed with resilience in mind. The strategy places a greater emphasis on acting as a true hedge to market volatility and therefore shows resilience in times of market distress. Our market-neutral fund seeks to earn a positive total return over a full market cycle regardless of market conditions or general market direction. By doing so, it delivers an absence of correlation to equities (0.12 to S&P500), fixed income (-0.23 to US Agg.) and crypto assets (0.14), demonstrating a high resilience to turmoils. The most recent and violent drop occurred last December, when the crypto market suddenly dropped 25%, an opportunity for Elite Crypto Market Neutral to showcase its resilience, with a small, but positive, +0.14% return that month.
Active Management Approach
- The active management of the portfolio is an important aspect in ODIN88’s approach. The fact that the portfolio consists of multiple funds with inherently different styles and characteristics is a way to diversify risk. Out of over 100 yield strategies, our concentrated portfolio currently consists of a careful selection of 4 single managers market-neutral funds, a selection that we continuously reevaluate for optimal outcomes.
Our fund selection process is highly structured and lives by a number of core beliefs that explain why the funds have been recognized as having some of the highest risk adjusted returns in the industry:
- Having a comprehensive view of the investment universe of over 1,100 crypto strategies
- Having clear expectations from the strategies, understanding how the strategy adds value to our portfolio
- Striving to onboard only fund managers with clear edges with competitive advantages
- Making a disciplined used of quantitative and qualitative criteria in our filtering process that ultimately leaves the multi-manager with an investable universe that is 5 % of the total universe scanned.
- Some of the key features we look for are : the level of consistency of the strategy, low downside risk, low volatility, significant alpha, low level of correlation to equities, fixed income and crypto markets and low correlation to other strategies in the current portfolio. In addition, there are a number of qualitative factors that we considered prior to an allocation. For example, we only consider managers where investment decisions and risk control are a function of a team, and have extensive experience managing the particular strategy. We also expect the manager to have a solid infrastructure, best-in-class counterpart risk management, a diversified set of platforms, as well as relationships with well-regarded custodians, auditors and administrators.
- Our investment philosophy is built on constructing a diversified portfolio of market-neutral hedge funds. These should be mutually uncorrelated, and uncorrelated to broad stock market, fixed income and crypto indices. We believe, if we are successful in our selection of managers, we can reduce the risk in the portfolio and generate high-risk adjusted returns, compared to having only one single manager.
Market Neutral in a Portfolio context
A diversified portfolio that holds a market-neutral component is better equipped to provide diversified returns and improve risk-adjusted returns.
Market Neutral : Specific Risks
Market-neutral strategies are subject to specific risks that one is not exposed to in the long-only space : the risk of not being truly market neutral. One of the risks is the practical ability of managers to maintain a beta of zero. It is very difficult to achieve a truly market-neutral positioning at all times. When large and sudden market drops occur, or when historical correlation patterns in the market break, is when real market-neutral strategies are tested – and revealed.
Perspectives for 2022
Any form of market dislocation should provide many opportunities for managers to find profitable trades within market-neutral strategies. With high uncertainty about the outlook for the global economy, monetary policy, political risk - and peace at large - there is a high possibility that volatility returns to global financial markets, resulting in sharp falls in equity, crypto, bond prices, and an increase in volatility indexes. This is an environment where market-neutral strategies excel.
If you are curious about ODIN88 multi-strategies, you can book a call here. You can also contact us at email@example.com if you are interested in knowing more about Elite Crypto Market Neutral and Elite Crypto Trading or our upcoming Elite Series strategies, such as Smart Token and Early Token.