Quantitative Models

Specialist in Global Macro and Volatility Fund

Putamen Capital considers quantitative output as a part of our investment decision process, to screen for investment opportunities and asset allocation decision. We have three primary quantitative models, namely the Global Asset Allocation Strategy (GAAS), Global Equity Strategy (GES) and Volatility Strategy (VS). We have also developed Global Equity Relative Strategy (GERS), which is based on each country’s valuation relative to its history and peers. It differs from GES, which is an absolute value model that disregard other countries performance and valuation. All of the model is based on U.S. dollar as the base currency.

In May 2020, we released two new quantitative trading strategy driven by our proprietary concept: Globa ERP Strategy (GERPS) and Long/Short Global ERP Strategy (LS-GERPS). See more details on MICE.

Global Asset Allocation Strategy (GAAS)

Putamen Capital’s GAAS is based on both Global Equity Strategy (GES) and Volatility Strategy (VS). In the model, asset class weight is determined as by a proprietary indicator and volatility strategy weight is capped at 20% of total portfolio value. The model alternate between global equities, fixed income and volatility instruments with the goal of delivering positive return regardless of market condition.

Between December 20th, 2005 and September 14th, 2021 Putamen GAAS delivered a simulated return of 9668% compared to our benchmark’s (MSCI All Country World) 260% return. This is equivalent to annualized return of 33.8% and 8.5%, respectively. Tail risk is also significantly reduced, as shown by the maximum drawdown of around 20% vs 50% for world equity.

Global Equity Strategy (GES)

Putamen Capital’s GES is a country-selection model from a universe of 37 developed and developing countries. In the selection factor, both fundamental and market-based data are utilized as the input, which has historically been able to avoid the “value trap”. Rebalancing is performed monthly, with the main goal of outperforming MSCI All Country World Index.

Between December 20th, 2005 and September 14th, 2021 Putamen GES delivered a simulated return of 7046% compared to our benchmark’s (MSCI All Country World) 260% return. This is equivalent to annualised return of 31.1% and 8.5%, respectively. Tail risk, however, is still high during period of market volatility due to the increased correlation across markets.

Volatility Strategy (VS)

Putamen Capital’s VS functions as a hedging signal to our main fund, Putamen Growth Fund (PGF), and as a return enhancer for the portfolio. As a stand-alone portfolio, the strategy is considered very aggressive and entails a higher than normal kurtosis distribution, making it suitable only for investors with very high risk tolerance.

Between December 20th, 2005 and September 14th, 2021 Putamen VS delivered a simulated return of 38717% with maximum drawdown of 69%. This is equivalent to 46% annualised return. During the 4105 days trading period, there are 288 transactions of buying and selling volatility instruments (7.0% turnover).

Global Equity Relative Strategy (GERS)

Putamen Capital’s GERS is a country-selection model from a universe of 37 developed and developing countries. In the selection factor, the model used countries valuation relative to its history and relative to other markets. Rebalancing is performed monthly, with the main goal of outperforming MSCI All Country World Index.

Between January 2004 and August 1st, 2021 Putamen GES delivered a simulated return of 7318% compared to our benchmark’s (MSCI All Country World) 194% return. This is equivalent to annualized return of 27.5% and 6.3%, respectively. Tail risk, however, is still high during period of market volatility due to the increased correlation across markets.

Global ERP Strategy (GERPS)Under Construction

Using ERP as the sole driver of equity allocation strategy, we build a quant model that provides country recommendation based on the expectation of narrowing risk premium and invest that recommendation in an equal-weighted portfolio. For example, if there are twenty countries recommended at the end of the day, then the model will assign 5% allocation for each country to be invested the following day. Although the recommendation is given on a daily basis, the country recommendation does not shift as often. Since June 2003 to end of April 2020, the average turnover for each country is 3.1%, or roughly 136 trades in 4413 trading days. Whenever there is an addition or elimination of a country recommendation, however, the model has to be rebalanced.  

In the simulated return, barring any transaction cost, $100 invested in June 2003 would have turned into $7734 at the end of April 2020, 31 times greater relative to the $244 return from the MSCI ACWI benchmark. This translates to 29.3% annualized return during the 17-year period, compared to 5.4% for the benchmark. Moreover, drawdown is reduced to 25% vs 60% for the benchmark.  

The model’s rolling downside tracking error, measured as the underperformance of the model on a 2-year rolling basis, also never breached 12%. In plain terms, this mean that investors could expect that at any time they invest in the fund, historically they would not underperform the benchmark by more than 12%.

Long/Short Global ERP Strategy (LS-GERPS)Under Construction

Our pure alpha or long/short global ERP strategy was derived purely from the ERP indicator. For the short-leg of the portfolio, we use MSCI All Country World index, whereas the long-leg is our ERP Strategy Portfolio.  

In the simulated return, barring any transaction cost, $100 invested in June 2003 would have turned into $2941 at the end of April 2020, 12 times greater relative to the $244 return from the MSCI ACWI benchmark. This translates to 22.1% annualized return during the 17-year period, compared to 5.4% for the benchmark. The main attractiveness of this strategy is the much lower standard deviation and drawdown performance, averaging only 11.9% (annualized) and 11.55%, respectively, since June 2003 to April 2020. 

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