CTA Spotlight: Buckingham Global Advisors
October 16, 2018
Buckingham Global Advisors has been at the forefront of conversations happening at Foremost, especially with the change to the Weekly E MINI minimum investment. Foremost Capital sat down with Chief Executive Officer, Charles Dai, for an interview on another one of Buckingham’s programs, the Metis Tactical E Mini (MTE) program.
Weiqin Dong founded Metis Asset Management Advisory, LLC in 2014. Weiqin was a partner and major investment decision maker at Stux Capital Management LLC from 2008-2014, managing money for CalPERS and other large pension funds. Weiqin also worked for GE Capital as a Senior Risk Manager. Weiqin holds an MBA from University of Chicago, Booth School of Business (Booth) and a Bachelor of Science from the University of Science and Technology of China, considered one of the premier sciences and math universities in the world. Upon graduating from Booth with major in Analytic Finance and Accounting, Weiqin was awarded Beta Gamma Sigma, the highest award for business students. She is also a Certified Financial Analyst (CFA). In November of 2015, Mrs. Dong’s first long/short mandate was funded, and in June of 2016, she registered Metis Advisory Management Advisory LLC with the State of New York as an RIA. In June of 2017, she partnered with Buckingham Global Advisors and Charles Dai to run the Metis Tactical E Mini (MTE) program implementing the METIS trading model using S&P 500 E-mini futures. She is the Portfolio Manager for Metis Tactical.
The goal of the program is to rally with the bull markets and outperform at bear market or turmoil time. The return will vary based on market conditions. The daily return correlation with SP500 over the backtest period is about 50% — the correlation is higher during the bull market, much lower or even negative during the bear market. The program’s margin is 5%. We trade Emini SP 500 futures only.
• The trading system is not purely trend following and is a 100% systematic data driven quant model that includes 5 sub-models analyzing over 40 technical and fundamental data components. We do not read the charts and perform other technical analysis.
• The model has varying sensitivity based on market conditions
• The model is based on a number of technical and fundamental factors other than price
• The model is based on following market beliefs: Different asset classes and stock market internet components’ relationships are monitored; Be aware of extreme sentiments at both sides, following the market trend until it becomes oversold or overbought; Understand the Fed: it often writes the script for Wall Street; Protect the downside: risk management
• Trading Strategy: The fund alternates between 50% or 100% long exposure, flat, and 50% short exposure
The S&P 500 E Mini market is one of the most liquid assets, we might get into other indices later, but currently we have no plans.
The program uses 5% margin and takes market risk. However, from our backtesting, we can target the max drawdown at 15%, if we exceed that, we would stop trading and reexamine the model.
The model provides a comprehensive data-driven view of the market. Risk management is built in the five separate sub models, which contain 40+ data components.
• Trend: When market deteriorates, the indicator turns neutral or negative
• Fed: Tightening fiscal policy and low liquidity could cause the Fed signal to turn neutral or negative
• Macro: Higher inflation or overheated economy could turn it to neutral or negative
• Turbulence: Market turmoil could turn its signal to neutral or negative
• Sentiments: Over optimism could turn its signal to neutral or negative
The program caught the SP spike down on 10/10/2018, making almost 2% that day and made another 1% on 10/11/2018. Our model turned negative since Thursday (10/3), we have either been in cash or short ever since. We exited our short position on Thursday (10/11) at close of Thursday and up more than 4% for October 2018. Typically, the strategy performs relatively well in a persistent bear market.
Notional Funding: Yes
2018 YTD Return: 3.47%
Annualized Compounded ROR: 11.97%
Worst Peak to Valley Drawdown: (8.29)% (1/18 – 2/18)
Program Start Date: June 2017
This program has less than three years performance
Outside Buckingham, Metis strategy managed an additional fund ($22M) via ETF SPY. The same model has been traded since 2015 on equity side via an RIA.
As we indicated in our quarterly research letter: with companies pumping out earnings and cash at record rate and using the cash to buy back stocks, no recession in sight, Fed’s gradual approach, we are constructive on US stocks and believe it is a bull market until proven otherwise. That is not to say that we will not see volatility, October is usually the most volatile month of the year and midterm election uncertainties will also help drive volatility higher. For all Octobers since 1896, when the Dow Jones Industrial Average was created, the standard deviation of the Dow’s daily changes has been 1.44% comparing to 1.05% for all months other than October.