Combining Trend-Following and Our Greatest Pastime. April 2015

Transcription

1 Combining Trend-Following and Our Greatest Pastime April 2015

2 Purpose To deliver superior returns by following major price trends in commodity and financial markets. 5

3 Problems for Investors 1) Traditional Investments = High Fees + Correlated + Average 2) No Way to Protect Assets During Economic Shocks 3) Cannot Profit Outside of Stocks, Bonds & Real Estate 5

4 Problem for Trend Following Investors Traditional Style Melissinos s Style A lineup of one star A lineup of solid, clutch performers 17

5 Solution 1) Adaptive Approach That Profits From Market Movement 2) Investor-Manager Alignment 5

6 Why Now Chart of basket of market vol Stats of what percentage of funds outperform 1) Global Market Volatility & Instability is Increasing 2) Traditional Investments Do Not Warrant the Fees 3) To Protect Assets if the Economy Slows 5

7 Why Now: Buying Opportunity Melissinos Avg 12mo Return: 7.58% Investing below the 10th Percentile: 14.47% (Max 26.98%; Min 10%. Odds of Profit = 100%) Above the 90th Percentile: 5.71% (Max 38.12%; Min -8.38%. Odds of Profit = 40%) In the middle: 10.71% (Max 54.77%; Min %. Odds of Profit = 61%) th Percentile 10th Percentile 12-month Rolling Return divided by Volatility After a losing month: 8.57% (Max 54.77%; Min -9.73%. Odds of Profit = 68%) -2 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 5

8 Why Now: Buying Opportunity Melissinos Avg 12mo Return: 7.58% Investing below the 10th Percentile: 6.65% (Max 26.98%; Min -9.53%. Odds of Profit = 60%) Above the 90th Percentile: -3.52% (Max 0.21%; Min -8.39%. Odds of Profit = 20%) In the middle: 13.51% (Max 54.77%; Min %. Odds of Profit = 70%) th Percentile 12-month Rolling Return divided by Drawdown After a losing month: 8.57% (Max 54.77%; Min -9.73%. Odds of Profit = 68%) -2 10th Percentile Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 5

9 Competitors: Big Differences Competitors Melissinos Business Model Gather assets Deliver efficient returns Trading System Conflicting ideologies & financials focused Pure LT diversified Trend-Following Culture Security Growth Customer Service Control-centric Collaborative Ownership Undisclosed Family-owned Performance Average Above-average 5

10 Product: Trend-Following with a Twist 1) A system of models with a one dominant goal 1) Each model has it s own strengths and weaknesses 3) Model design - The key areas we focus on: a) What markets to trade b) If/when to trade c) How much to risk 5

11 Product: A Lineup of Different Models Model 1 Model 2 Model 3 Model 4 Model 5+ Plans for future models Scouting Report Strengths Static portfolio, Breakouts, Does not add to winners. Avg trade 3 months Captures quickly changing trends, High diversification. Dynamic portfolio, Adds to winners Avg trade 4 months. Only trades the hottest trends Always has a position, extremely long-term. Avg trade 10 months. Captures the longest and largest trends without getting shaken out. Long-only, Goes long periods without a position. Stores ammunition for only the strongest uptrends Sector-specific models, Inter- position position size adjusting. Position size adjustments before key events. Weaknesses Trouble with high inter-trade volatility. Loses diversification at times Sits through long retracements; can hold dead weight Misses out on major downtrends Allow for limited discretion in overriding rules. 68

12 Product: Non-Correlation to other Assets Melissinos U.S. Stocks U.S. Bonds S&P Case Schiller World Stocks Commodities Hedge Funds Melissinos 1 U.S. Stocks U.S. Bonds Livestock Energies Agriculture S&P Case Schiller World Stocks Commodities Hedge Funds

13 Product: Non-Correlation Correlation Traditional Assets S&P 500: Case-Schiller: ,800 1,550 SP 500 US 10Y Tsy Melissinos Growth of $1,000 GSCI TR MSCI EAFE GSCI: MSCI EAFE: US 10Y Tsy: ,300 Hedge Funds Convert Arb: Market Neutral: 0.01 Multi-Strategy: Emerging Mkts: Fixed Inc Arb: Event Driven: Distressed: L/S Equity: Global Macro: 0.23 Barclay HF: All figures are from Jan 2011 to Mar , All figures are from Jan 2011 to Mar 2015, unless otherwise noted. 25

14 Performance: Outperforming Peers CAGR Max DD MAR (CAGR:MaxDD) Melissinos 10.68% % 0.62 Barclay CTA 2.38% -5.19% ,650 1,420 1,190 Growth of $1,000 BTOP 50 Barclay CTA Newedge CTA Newedge Trend Melissinos BTOP % -8.34% Newedge CTA Newdege Trend 3.17% % % % 0.24 All figures are from Jan 2011 to Mar

15 Performance: Providing a Smoother Ride 60/40 45/30/25 Melissinos 1,700 1,475 60/40 45/30/25 Melissinos Growth of $1,000 CAGR 8.56% 9.11% 10.68% Annual Vol 6.67% 6.10% 16.63% Max Loss -7.98% -5.53% % 1,250 Sharpe MAR (CAGR:MaxDD) ,025 All figures are from Jan 2011 to Mar *Assuming a risk-free rate of return (3-month LIBOR) 800 Jan-11 Jan-15 68

16 Performance: Providing Stability 8% 4% All Days the S&P 500 loses 2% or More (27 days) Avg S&P 500 return -2.63% Avg Melissinos return 0.86% Avg Newedge CTA return 0.20% -0% -4% -8% Feb Jun-1-11 Jun Aug-2-11 Aug-4-11 Aug-8-11 Aug Aug Sep-2-11 Sep-9-11 Sep Sep Sep Sep Oct-3-11 Oct Oct Jun-1-12 Jun Nov-7-12 Apr Jun Jan Feb-3-14 Apr Jul Oct

17 Investment Terms Melissinos-Eupatrid, LP Managed Account Eligibility Accredited Investors QEPs Minimum $50,000 $500,000 Redemptions / Liquidity Monthly w/ 10 business days notice Daily Subscriptions Monthly Daily Management Fee 0-2% 0-2% Incentive Fee 20-30% of profits above high watermark 20-30% of profits above high watermark High Watermark Reset None None Lock-up Period None None Taxation Capital gains at year-end 60% Long-term Rate / 40% Short-term Rate 30

18 Infrastructure & Security Multiple off-site locations, multiple back-ups, disaster recovery and business continuity plan. Cash movement requires multiple sign-off s (Melissinos & third party admin). Multiple financial institutions. Third party administrator. First tier audit, tax legal representation. Michael Melissinos has a significant stake in the fund. Live risk management 24/7. 31

19 Service Providers FUNCTION COMPANY ADDRESS PHONE CONTACT BROKER #1 ADM Investor Services 141 W Jackson Blvd, #1600A Chicago, IL (800) Walter Gallwas (Attain Capital) BROKER #2 INTL FC Stone 708 Third Ave, 15th Floor New York, NY (312) Heather Walsh ADMINISTRATOR Essential Fund Services 270 North Avenue New Rochelle, NY (914) Gerard Federici AUDITORS Alperin, Nebbia & Assoc 375 Passaic Ave Fairfield, NJ (973) Steven Alperin COUNSEL Fox, Swibel, Levin & Carroll 200 West Madison Chicago, IL (312) Jeffrey Blumberg CASH MANAGER Halyard Asset Mgmt 50 Main St, 9th Fl White Plains, NY (914) Michael Kastner 32

20 MELISSINOS T R A D I N G Thank you. To learn more, please visit my website or feel free to contact me directly. Michael Melissinos 9 Brandywine Drive Matawan, NJ (732) michael@melissinostrading.com 33

21 Additional Disclosure Commodity trading bears a high degree of risk. People can and do lose money. Past performance does not guarantee future results. The Barclay CTA Index is a leading industry benchmark of representative performance of commodity trading advisors. It is not an investible index. There are currently 551 programs included in the calculation of the Barclay CTA Index for the year 2014, which is unweighted and rebalanced at the beginning of each year. To qualify for inclusion in the CTA Index, an advisor must have four years of prior performance history. Additional programs introduced by qualified advisors are not added to the Index until after their second year. These restrictions, which offset the high turnover rates of trading advisors as well as their artificially high short-term performance records, ensure the accuracy and reliability of the Barclay CTA Index. The BTOP50 Index seeks to replicate the overall composition of the managed futures industry with regard to trading style and overall market exposure. The BTOP50 employs a top-down approach in selecting its constituents. The largest investable trading advisor programs, as measured by assets under management, are selected for inclusion in the BTOP50. In each calendar year the selected trading advisors represent, in aggregate, no less than 50% of the investable assets of the Barclay CTA Universe. To be included in the BTOP50, the following criteria must be met: Program must be open for investment, Manager must be willing to provide us daily returns, Program must have at least two years of trading activity, Program's advisor must have at least three years of operating history, The BTOP50's portfolio will be equally weighted among the selected programs at the beginning of each calendar year and will be rebalanced annually. For 2014 there are 20 funds in the Barclay BTOP50 Index. The Newedge CTA Index provides the market with a reliable daily performance benchmark of major commodity trading advisors (CTAs). The Newedge CTA Index calculates the daily rate of return for a pool of CTAs selected from the larger managers that are open to new investment. Selection of the pool of qualified CTAs used in construction of the Index will be conducted annually, with re-balancing on January 1st of each year. A committee of industry professionals has been established to monitor the methodology of the index on a regular basis. The Newedge CTA Index will allow market participants and institutional investors to: Measure aggregate CTA performance on a day-to-day basis; Track the performance of a CTA (or a pool of CTAs) against the market; and Assess the performance of Managed Futures Funds against an index with the same accuracy as is already possible for other asset classes. The Newedge CTA Trend Sub-Index is a subset of the Newedge CTA Index, and follows traders of trend following methodologies. The Newedge CTA Index is equal weighted, calculates the daily rate of return for a pool of CTAs selected from the larger managers that are open to new investment. The S&P 500 Index is based on GSPC Total Return Index and is updated through the current month. The information presented in these materials is for general information purposes only. Nothing presented in these materials should be construed as a recommendation to buy or sell any security or to participate in any particular trading strategy. Trading in Commodity Futures is very risky. There is a possibility of substantial financial loss, greater even than monies initially invested. The simulated, hypothetical performance results presented here in have certain inherent limitations, due to the fact that the trades have not actually been executed. Simulated trading results, in general, may be influenced by the fact that the algorithms which generated them were designed in consideration of historical trends, and with the benefit of hindsight. Past real or hypothetical performance of Melissinos Trading LLC s systems is not a guarantee of future results, real or hypothetical. No representation is made that any trading account would, or would be likely to achieve profits or losses similar to the real or hypothetical results described herein. Melissinos Trading LLC ( the Advisor"), including but not limited to all agents and affiliates of the Advisor, participating in the distribution of information contained herein is held harmless and are without liability regarding any use whatsoever of the information presented in these materials or any related materials. Commodity Trading may not be suitable for all readers of this material. You, and not the Advisor, assume the entire cost and risks of any trading you choose to undertake. Under no circumstances shall the Advisor be liable for any special or consequential damages that result from the use of or the inability to use, materials provided by the Advisor. Applicable law may not allow the limitation or exclusion of liability or incidental or consequential damages, so the above limitation or exclusion may not apply to you. The information, data, and methodologies contained in these materials is not intended to be published or made available to any person in any jurisdiction where doing so would result in contravention of any applicable laws or regulations. Accordingly, if it is prohibited to make such information available in your jurisdiction or to you (by reason of your nationality, residence or otherwise) it is not directed at you. Before reviewing these materials you must be satisfied that doing so will not result in such a contravention and is not so prohibited, and by proceeding to review them you will be confirming that this is not the case. The Advisor has taken all reasonable care and precaution to ensure that the information is fair and accurate, or has been compiled from sources believed to be reliable. Nevertheless, the Advisor does not make any representations or warranty, express or implied, as to the accuracy, completeness, or fitness for any purpose or use of the information in these materials. The information may not in all cases be current, and it is subject to continuous change. Accordingly, you should not rely on any of the information contained in these materials as authoritative or a substitute for the exercise of your own skill and judgment in making any investment or other decision. The Advisor does not warrant that the information in these materials is error free, and shall not be liable for any direct, indirect, or consequential loss arising from any use of or reliance on the information contained in the materials.