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Fund Strategy & Risk Management

Investment Objective

We aim to provide long-term capital appreciation by offering the most diversified futures portfolio possible, thus maximising profits whilst minimising risk, and consistently providing positive returns regardless of fluctuations in any single asset class.

We employ various protective strategies to limit losses and protect the investment capital.

Investment Approach

The fund applies a global macro strategy meaning, a hedge fund strategy that bases its holdings - such as long and short positions in equity, fixed income, currency, and futures markets – primarily on overall economic and political views of various countries (macroeconomic principles).

The model is a short-term volatility break-out driven system with multiple filters that applies strict risk management principles, all of which are thoroughly back-tested:

  • Research driven: the Fund attributes its exceptional success to superior research methods. Model testing is robust with very few degrees of freedom. Proprietary statistical techniques are applied e.g. analysing multiple period subsets, market-by-market, sector, and risk/reward analysis, and many others. An independent research team develops and tests systems, cross-check all results using different research platforms.
  • Value orientation: this research enables Caveat hedge fund portfolio to offer superior fundamental value. A robust top- down approach allows a thorough analysis of the market from the big picture all the way down to individual stocks.
  • Share selection: the Fund applies a systematic approach blending long-term and short-term trend following, momentum and mean reversion strategies. Each strategy, divided into subsystems, facilitate smoother entries, and exits.

Filtering techniques are applied, to avoid trades with adverse risk/reward characteristics. While the filter’s goal is to capture profits, its selectiveness allows the system to enter markets only during periods when the risk/reward of a trade is heavily in the trade’s favour. The filter could even avoid trades with positive profit expectations if unacceptable risk characteristics exist.

Caveat Fund starts with a macroanalysis followed by a microanalysis.

Macroanalysis: The Global View

  • Global events affect markets in each region of the world in diverse ways. We scrutinise the impact of these events to inform our trading decisions.
  • We identify regions that are in an uptrend and analyse them to determine whether they would be of benefit to our portfolio.
  • Interest rates, inflation, and unemployment are valuable indicators of market strength and buoyancy, and therefore an essential aspect of our research.
  • Fundamental and technical analysis of stock indices such as S&P 500 and NASDAQ assist in evaluating the health of the indices.

Macroanalysis is a key factor in directing asset allocation. Bullish results are an indication that investment-worthy assets will be from the equities market. However, if the outlook is bleak, the allocation will shift from equities to more conservative investments such as fixed income and money markets.

Microanalysis: The Sector View

Microanalysis explores specific sectors i.e., healthcare, technology, mining, etc. This is the most resource intensive part of our research as we examine individual stocks from various perspectives. The most feasible stocks are identified, and the buying process is initiated

Currency Management

Base Currency

Our trading base currency is US$ (United States Dollars) or other such currency as the directors shall determine from time to time. Investment statements are in US$.

Global Major Currencies

Exchange rate fluctuations significantly influence global investment returns and we effectively use the short- and long-term trend fluctuations of these currencies to benefit investors. The fund’s currency deployment frequently differs from the geographic deployment of its equity selection.

Digital Currency

Caveat Fund is licenced and authorised to offer and support any digital or crypto currencies and defined as:

All digital assets that are sold, designed, or used as a virtual medium of exchange using cryptography to secure the transactions.

All blockchain-based digital tokens, whether created using the Ethereum platform or not, that are sold, designed or used as utility token, access token or rewards token, including tokens which provide holders with the present or future ability to access a system or perform a function; and all other peer-to-peer electronic digital assets represented on a decentralized network, including digital tokens sold pursuant to an initial coin offering that are exchangeable or represent a digital asset described above.

Digital Arbitrage: The directors may use the services and expertise of digital specialists to create additional protection and advanced growth opportunities. Through arbitrage, profits are generated through the price movement and inefficiency in the crypto to crypto and crypto to fiat money markets.

Trading is not applied on the market price movements or fluctuations but specifically on the price differences created within the different digital exchanges throughout the world. Utilizing these price differences between the various exchanges creates risk-free profits, net of costs.

Portfolio Hedging

Caveat Fund effectively applies exchange-traded derivatives to offer investors positive returns. In doing so, the fund purchases or sells exchange-traded derivatives, for example futures and options, if the analysis proves it to be in support of positive returns, consistent with the fund’s investment objective.

The main risk of investing is that the selected equities prices will decline if stock markets fall or fluctuate.

To reduce the risk the fund applies full expertise and mandate, maintaining a substantial level of hedging. Hedging strategies are most effective when over valuations in the market occur and vulnerability presents itself within the market. The manager’s actions are not limited which means that any number of hedging strategies may be applied however, the manager may also choose to close all current trading positions.

In combination with the hedging strategy, effective protection strategies are applied, as explained on the "Risk Management" tab below.

Risk Management

Caveat Fund Ltd. applies a variety of risk management strategies to protect initial capital and substantially minimize losses.

Selected Market Exposure:

Trading in 45 carefully selected markets strikes the perfect balance. It is large enough to provide a diverse portfolio, yet small enough to maintain expertise and intimate understanding of each of the markets. This enables Caveat to render proper global exposure and diversity to capitalise on market conditions and generate value.

Algorithms:

Caveat believes that a combination of human knowledge and skills, together with the unlimited power of algorithms that supply 24/7 research, charts, warnings, opportunities, etc. places us in the most favourable position to generate true value.

Exit strategies:

Markets fluctuate continuously and these fluctuations are at times unforeseen and sudden. This is the reason Caveat does not apply an indefinite “buy and hold” strategy. Once a selected stock or instrument reaches 30% of its determined goal the position is closed, and we pursue other opportunities. This is an extremely effective in minimising risk.

During extreme volatility or uncertainty, we close current positions in favour of more stable options.

Profit sharing / Dividends:

Caveat offer dividends of 1.5% per quarter (Dec, March, June, Sept), thus 6% p/a, based on the fund value, as of the last day of the previous month.

This dividend is a risk-free allocation which lowers the investment risk by 42% p/a with a target of 15% p/a. Quarterly dividends are reinvested, until the investor instructs otherwise in writing.

Arbitrage:

Applying the price differences (not market fluctuations) between the different digital exchanges throughout the world, Caveat is able to offer risk-free enhancement to the investment performance.

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Caveat Fund Ltd

(FSC Reg. No. SIBR/FAF/18/0125 | Company Reg. no. 1972334)
4th Floor, RJT Edifice, Waterfront Drive, Road Town, Tortola, BVI, VG 1110
Copyright © 2022 Caveat Fund Ltd. All Rights Reserved
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