Key Takeaways
- • Copenhagen-based Methodica Capital Partners Fund I switches between S&P 500 exposure and proprietary FX trading strategies based on one-day-ahead equity volatility forecasts, per HedgeNordic.
- • Under normal conditions the fund holds roughly 85 percent S&P 500 and 15 percent FX, reversing to 85 percent FX and 15 percent S&P 500 when volatility rises to high levels.
- • Founder, CEO and CIO Andreas Junge targets average annual returns of 16-19 percent with volatility near 10 percent, versus an estimated 7-10 percent for the S&P 500.
- • The fund is not designed to eliminate equity risk; Junge says it may trail the index by two or three percentage points in extended bull markets and does not describe it as a low-volatility hedge fund.
- • The fund started trading on 19 May, and Junge acknowledges its downside protection has yet to be proven in live significant drawdowns.
Summary
Copenhagen-based Methodica Capital Partners has launched Fund I, a strategy that pairs long exposure to the S&P 500 with a suite of proprietary systematic FX trading models. According to HedgeNordic, the fund moves between the two exposures according to volatility forecasts, aiming to retain much of the equity market's return potential while generating returns during periods of market turbulence.
The strategy rests on more than a decade of work developing systematic FX models. Andreas Junge, founder, CEO and CIO of Methodica, is a mathematician with more than 25 years of systematic trading experience, previously working in risk management, commodities and freight derivatives, including hedging programmes and systematic trading with major shipping and energy companies. Junge says the firm observed that its FX strategies have an inverse relationship with equity indices and that their performance is highly dependent on volatility. He notes the FX algorithms tend to perform best in moderate-to-high-volatility environments.
Allocation is governed by an automated protocol driven by the team's proprietary models, which forecast equity volatility one day ahead. If high volatility is predicted, the portfolio switches into FX; if lower volatility is predicted, it shifts toward the S&P 500. The portfolio is positioned predominantly in one component at a time. Under normal conditions it may hold about 85 percent S&P 500 and 15 percent FX, and in particularly calm markets the strategy can apply modest leverage to its S&P 500 exposure. Over the long run, the team expects equity exposure about 65 percent of the time and FX about 35 percent.
The FX component comprises around 12 strategies covering momentum, mean reversion and breakouts. Junge describes most as statistical, probability-based models, and some incorporate bond-market information such as US-German interest-rate differentials. The models combine high win-rate strategies that occasionally suffer larger losses with less frequent winners that can produce substantial gains.
Junge targets average annual returns of 16-19 percent and volatility around 10 percent, compared with an estimated 7-10 percent return for the S&P 500. He attributes the lower volatility target to reduced S&P 500 exposure during drawdowns. He cautions that the strategy has only been trading since 19 May and that its protection during significant future drawdowns remains to be demonstrated. He also states the fund remains dependent on the S&P 500 for long-term returns, may trail the index by two or three percentage points in extended bull markets, and should not be described as a low-volatility hedge fund.
The strategy rests on more than a decade of work developing systematic FX models. Andreas Junge, founder, CEO and CIO of Methodica, is a mathematician with more than 25 years of systematic trading experience, previously working in risk management, commodities and freight derivatives, including hedging programmes and systematic trading with major shipping and energy companies. Junge says the firm observed that its FX strategies have an inverse relationship with equity indices and that their performance is highly dependent on volatility. He notes the FX algorithms tend to perform best in moderate-to-high-volatility environments.
Allocation is governed by an automated protocol driven by the team's proprietary models, which forecast equity volatility one day ahead. If high volatility is predicted, the portfolio switches into FX; if lower volatility is predicted, it shifts toward the S&P 500. The portfolio is positioned predominantly in one component at a time. Under normal conditions it may hold about 85 percent S&P 500 and 15 percent FX, and in particularly calm markets the strategy can apply modest leverage to its S&P 500 exposure. Over the long run, the team expects equity exposure about 65 percent of the time and FX about 35 percent.
The FX component comprises around 12 strategies covering momentum, mean reversion and breakouts. Junge describes most as statistical, probability-based models, and some incorporate bond-market information such as US-German interest-rate differentials. The models combine high win-rate strategies that occasionally suffer larger losses with less frequent winners that can produce substantial gains.
Junge targets average annual returns of 16-19 percent and volatility around 10 percent, compared with an estimated 7-10 percent return for the S&P 500. He attributes the lower volatility target to reduced S&P 500 exposure during drawdowns. He cautions that the strategy has only been trading since 19 May and that its protection during significant future drawdowns remains to be demonstrated. He also states the fund remains dependent on the S&P 500 for long-term returns, may trail the index by two or three percentage points in extended bull markets, and should not be described as a low-volatility hedge fund.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.