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Dr Jan Auspurg (pictured), a fund manager within the quant team at Hamburg-based Aquila Capital, says the AC Spectrum Fund, a Luxembourg-domiciled Ucits that generated a return of 9.98 per cent last August amid massive equity market losses, takes into account not only the strengths of trend-following strategies but their weaknesses, such as a tendency to perform less well in sideways-trading markets or in times of sudden trend reversals.

GFM: What is the history and background of your company, principals and funds?
JA: Aquila Capital is a dynamic alternative investment company with USD4.6bn under management, specialising in next-generation absolute return and real asset investment strategies including, but not limited to, Ucits-compliant funds. Aquila Capital was founded in 2001 by Roman Rosslenbroich and Dieter Rentsch, who both have extensive experience in the international asset management arena.
GFM: What is the structure of your fund?
JA: The AC Spectrum Fund is a Luxembourg-domiciled Ucits fund. The AC Spectrum strategy has been trading live since September 2010 and was made available to investors in the form of a Ucits fund in May last year.
GFM: Who are your main service providers?
JA: The fund’s main service providers are Ernst & Young Luxembourg as auditor, Alceda Fund Management in Luxembourg as management company, and HSBC Trinkaus & Burkhardt (International) as custodian bank and central administration agent.
GFM: What is your distribution strategy and targeted client base?
JA: The fund offers both retail and institutional share classes and has a global distribution strategy, reflected by the fact that it is registered for public distribution in Germany, Austria, Singapore, Switzerland, Spain, Italy and the UK.
GFM: What impact has the recent global financial crisis and economic downturn had on your business?
JA: From a corporate perspective, we have weathered the global financial crisis extremely well, seeing significant inflows into our absolute return Ucits funds in 2011. Our absolute return funds, such as the AC Risk Parity and AC Spectrum Funds, have also withstood the crisis extremely well, posting positive returns in 2011.
GFM: Please describe your investment process.
JA: The AC Spectrum Fund is a liquid futures fund and one of the first of its kind to offer daily rather than weekly liquidity. The fund was masterminded by Prof. Dr. Harry M. Kat, a world-renowned expert on alternative investments and a pioneer in hedge fund replication research, and Aquila Capital’s quant team.
The majority of trend-following funds tend to only focus on the strengths offered by such strategies, namely attractive long-term performance, high returns during crisis periods and uncorrelated returns with traditional asset classes.
By contrast, the AC Spectrum Fund also recognises the strategies’ weaknesses, such as their tendency to perform less well in sideways-trading markets or in times of sudden trend reversals. That is why the AC Spectrum Fund takes the trend-following concept a step further.
The fund supplements a trend-following strategy with two additional systematic strategies, carry and correlation, that are negatively correlated with trend-following, in order to achieve a more stable and stronger return stream over time.
In addition, the fund applies a conviction-based allocation and risk parity methodology, which optimises its capital allocation, as well as efficient and rigorous risk control. The fund targets a return of 18 to 20 per cent per year with 15 per cent volatility. Altogether, this makes AC Spectrum an ideal diversifier for any investment portfolio.
GFM: How do you generate ideas for your funds?
JA: Within the AC quant research team, run by Dr. Kat, we have built up significant capabilities that allow us to generate new ideas both to enhance existing strategies and develop new systematic strategies. Once identified, the new ideas are further developed and tested in-house.
GFM: What is your approach to managing risk?
JA: Risk management plays an important role with the AC Spectrum Fund and forms an integral part of the fund’s investment process. In addition to managing risk through a high degree of diversification over markets and indicators, risk is also managed through sizing positions according to recent market volatility, thereby reducing positions when volatility rises and vice versa.
In addition, the fund employs a number of risk limits. To avoid concentration of sector risk, the contribution of each sector to the overall portfolio volatility is limited to 6.5 per cent. In addition, VaR and stress tests are carried out daily to evaluate the downside risk profile of the portfolio and corrective action is taken automatically when necessary.
Twenty-day VaR and historical 20-day loss are limited at 20 per cent with a 99 per cent confidence level, while historical daily loss is limited at 2.5 per cent with 95 per cent confidence. This prevents excessive downside risk, but without damaging the strategy’s performance over time.
GFM: How has your fund performed?
JA: The fund has performed extremely well, generating a return of 6.78 per cent since its launch last May. The fund’s returns significantly exceed the performance achieved by the Newedge CTA Index, a key managed futures performance benchmark, which posted a loss of more than 3 per cent over the same period.
The AC Spectrum Fund has had to weather significant market turbulence in its short life and during this time has been able to prove clearly its strengths to investors. In August 2011, which witnessed some of the worst equity market losses since the height of the financial crisis in 2008, the fund was able to generate a return of 9.88 per cent.
This result clearly set the fund apart, not only from the broader markets but also within its CTA peer group. According to a recent study by Absolut Research, which analysed the performance of 670 absolute return Ucits funds between July 1 and August 24, AC Spectrum ranked as the best-performing fund.
GFM: What do investors currently expect from managers, and how do you deal with those expectations?
JA: In these uncertain markets, investors seek investment products that offer uncorrelated returns and can generate positive returns even during market downturns, such as the AC Spectrum Fund.
GFM: What differentiates you from other managers in your sector?
JA: The fund’s investment approach, which supplements a trend-following strategy with two additional systematic strategies, is a clear differentiator.
The results are convincing. A breakdown of the performance components clearly illustrates the added value provided by the carry and correlation strategies – the average return per annum increases notably whilst the volatility decreases. The Sharpe and Sortino ratios are also significantly higher, with the Spectrum trend-following strategy alone achieving returns notably higher than those of the Newedge CTA Trend index.
The live returns of the fund since its launch have not disappointed. The f has delivered exactly what it was designed to achieve, generating high uncorrelated returns based on a trend plus approach.
GFM: How do you view the environment for fundraising over the coming 12 months?
JA: We have seen significant investor interest in the fund since launch and are confident this interest will continue. In my view, trend-following strategies are likely to prosper in the current environment of strong and sustained market volatility.
We firmly believe that robust and liquid investments that can achieve consistent above-average returns without capacity problems and without significant counterparty risk will increasingly gain the interest of institutional investors. Adding such products to traditional investment portfolios offers the opportunity to significantly increase their average return and Sharpe ratio while reducing the volatility.

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