Key Takeaways
- • The Tahoe Fund, L.P., managed by Incline Investment Management, employs a proprietary Systematic Hybrid trend-following program with dual "alpha engines" that dynamically allocate between global futures markets and large-cap US equities based on market conditions.
- • The first engine monitors 72 global futures markets across commodities, interest rates, energy, currencies, stock indices, and metals, generating long and short exposure to capture returns in both bull and bear markets.
- • The second engine focuses on long-only exposure to large-cap US equities in consumer discretionary, materials, healthcare, and financials sectors, with tactical short index futures hedges deployed during defined market downtrends.
- • The Tahoe Fund delivered a 22% year-to-date return as of September 30, 2022, with the dual-engine approach designed to generate additional return streams compared to traditional managed futures portfolios that typically hold 85% in cash.
- • The strategy allocates capital dynamically: during low-volatility periods, the equity engine drives performance; during high-volatility environments, the futures engine capitalizes on increased magnitude and frequency of market moves.
Summary
Incline Investment Management's Tahoe Fund, L.P. operates a systematic trend-following strategy that differentiates itself through a two-engine architecture designed to adapt to changing market regimes. Rather than employing a single-mandate approach, the Systematic Hybrid program features complementary alpha engines that dynamically shift in their contribution to portfolio returns based on prevailing market conditions.
The first engine represents a traditional trend-following systematic approach, monitoring 72 global futures markets to identify directional breakouts and trends. This engine maintains flexibility to establish both long and short positions across commodities, interest rates, energy, currencies, stock indices, and precious metals. By capturing trends in both rising and falling markets, this component provides portfolio resilience during equity market stress periods when traditional long-biased strategies suffer losses.
The second engine focuses on domestic large-cap equity exposure across consumer discretionary, materials, healthcare, and financials sectors. This engine incorporates a tactical hedging mechanism through short index futures positions during defined market downturns, potentially creating net short equity exposure during pronounced selloffs. This structure allows the portfolio to benefit from equity market appreciation during bull markets while limiting drawdowns during bear markets through systematic hedging protocols.
Risk management underpins the strategy through position limits, dynamic stop-losses, diversification across asset classes and geographies, disciplined entry and exit frameworks, and liquidity controls. The managers contend that the dual-engine approach generates returns superior to traditional managed futures portfolios, which typically deploy only 15% of assets in active positions while holding 85% in cash equivalents. The Tahoe Fund reported a 22% year-to-date return through September 30, 2022, reflecting the strategy's performance during a volatile period marked by rising interest rates and equity market declines.
The philosophical underpinning of the approach rests on the observation that low-volatility environments favor equity-driven returns, while elevated volatility environments reward systematic trend-following across diversified global futures markets. Ted Parkhill, CEO of Incline Investment Management, was scheduled to present the strategy at the Small Managers - Big Alpha Episode 10 webinar on October 4, 2022.
The first engine represents a traditional trend-following systematic approach, monitoring 72 global futures markets to identify directional breakouts and trends. This engine maintains flexibility to establish both long and short positions across commodities, interest rates, energy, currencies, stock indices, and precious metals. By capturing trends in both rising and falling markets, this component provides portfolio resilience during equity market stress periods when traditional long-biased strategies suffer losses.
The second engine focuses on domestic large-cap equity exposure across consumer discretionary, materials, healthcare, and financials sectors. This engine incorporates a tactical hedging mechanism through short index futures positions during defined market downturns, potentially creating net short equity exposure during pronounced selloffs. This structure allows the portfolio to benefit from equity market appreciation during bull markets while limiting drawdowns during bear markets through systematic hedging protocols.
Risk management underpins the strategy through position limits, dynamic stop-losses, diversification across asset classes and geographies, disciplined entry and exit frameworks, and liquidity controls. The managers contend that the dual-engine approach generates returns superior to traditional managed futures portfolios, which typically deploy only 15% of assets in active positions while holding 85% in cash equivalents. The Tahoe Fund reported a 22% year-to-date return through September 30, 2022, reflecting the strategy's performance during a volatile period marked by rising interest rates and equity market declines.
The philosophical underpinning of the approach rests on the observation that low-volatility environments favor equity-driven returns, while elevated volatility environments reward systematic trend-following across diversified global futures markets. Ted Parkhill, CEO of Incline Investment Management, was scheduled to present the strategy at the Small Managers - Big Alpha Episode 10 webinar on October 4, 2022.
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