The Permanent Portfolio and Momentum Portfolio are long-only portfolios. Technically they focus on allocate on the main asset classes which only exit: stock, bond, commodity (or gold) and cash.

In order to increase the source of “uncorrelated” performers, you might decide to invest in real-estate, art, vineyard, forest or open a restaurant?

Unfortunately, most of these “alternative” performers (assets) will perform well (generating profit) when the economy in growing and will struggle (lose value) when the economy is contracting. This means that they somehow will be “correlated” to the global economy orientation, growing or shrinking all together. Even real-estate for instance, which is technically a combination of stock and bond, will be dependent of the global economic health.

True “alternative” investments should be uncorrelated to the prior four assets (stock, bond, commodity, cash).

This is where CTA strategies come to play. Commodity Trading Advisors (CTA) provide investment strategies which can be totally uncorrelated to the economy orientation and thus to the market orientation.

Several types of CTA programs exists, but we can generally rank them between short-term and long-term strategies, based on the average trade duration. For small portfolio (under $1M), I recommend using short-term CTA strategy only and for bigger portfolio, a combination of short-term and long-term CTA strategies is appropriate.

A well-chosen CTA strategy will behave like bringing a fifth uncorrelated asset to the prior four assets (stock, bond, commodity, cash), improving the risk-adjusted return of the overall portfolio, in any market environment.


The Alternative Portfolio Allocation

SINGULARIS is a short-term contrarian CTA strategy that I have designed and I have been trading since 2009. This is the CTA strategy that I am using for the Alternative Portfolio allocation.

The program objective is to deliver a performance of 8-10% on average per year with a volatility under 10%, totally uncorrelated with traditional asset classes (stock, bond, commodity, cash).

SINGULARIS is a systematic trading program that arbitrages the daily variation of the SP500, the most liquid future index.

The strategy aims at exploring the opportunities created by the extended trading session of the future market, which trade during a longer time period as the underlying cash market. The SP500 futures trades 24 hours a day, whereas its underlying cash market trade only from 09h30 to 16h00 New York time.

When both markets, the SP500 futures and the SP500 stocks are open, they tend to move very closely. But after the close of the stock market, the SP500 futures is still open and is “orphaned”, i.e. trades without the information of the SP500 stock market.

SINGULARIS exploits the fact that if the futures market makes a significant move while “orphaned” (underlying stock market closed), then the futures market tends to mean-revert when the stock market reopens the next day, thus the opportunity for a contrarian position.

 The concept is simple, sound and reliable.

This statistical bias appeared end 1997, at the creation of the first night-session on the e-mini SP500 futures. The approach has been back-tested since this date, has proved to be stable over time, whatever market state or volatility and has been trading with success since 2009.

SINGULARIS Performance Table

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SINGULARIS Correlations (09/2009 – 12/2015)

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SINGULARIS Equity Curve

20160501-1702 SGL Equity

 

SGL.Equity_vs_SP500

Starting in July 2009, the performance reported is a composite performance, gross of commissions. From March 2012 to October 2014, results represent the exploitation of the strategy by Quantis Asset Management which has exploited the strategy for the Ulysses Futures program. The performance attribution for some accounts may vary from the composite, due to their size, markets traded, commissions, fees, as well as other factors. The results from November 2014 through current represent a proforma proprietary account.

PAST PERFORMANCE IS ABSOLUTELY NOT A GUARANTEE OF FUTURE RESULTS.