To reduce tracking error against the offshore fund, FX Concepts sacrifices some of its own management fees to partly offset extra UCITS costs (swap, administration, custody and collateral fees). Rebalancing the total return swap daily also helps to align the UCITS more closely with the offshore fund.
GCP was best suited to a daily UCITS, since FX Concepts’ other programmes (multi-strategy currencies and multi-asset strategies) involve over-the-counter (OTC) options that can be difficult to rebalance and revalue every day. GCP trades only deliverable forwards, and non-deliverable (cash settled) forwards, so could be liquidated in a
matter of hours, given strategy assets of $3.2 billion.
GCP trades one of the widest currency universes: 30 currencies or 528 possible pairs. Liquidity risk is managed by sizing positions inversely to their liquidity: so USD, Euro or Yen could be as big as 150% but at the other end of the spectrum, currencies such as Argentinian Peso or Russian Rouble are capped at 10% each.
Other risk controls include annualised volatility targets of 12%, recently undershot, and substantially beneath the analogous sophisticated UCITS threshold. FX Concepts is not completely systematic: its founder and chief investment officer, John Taylor, can sometimes exercise discretion to reduce risk and did so quite recently: in January 2011, when heavy central bank intervention was leading to sharp moves in some currencies that created a market climate less conducive to the predictive models used by FX Concepts.
The two core models are following trends, and earning carry from interest rate differences. These complement each other well most of the time, since carry tends to do better in “risk on” markets and momentum in “risk off” markets. Yet the system is flexible enough to allow one model to effectively override the other.
In late 2008 as the bear market intensified, the trend model overwhelmed the carry model. Not only were carry trades cancelled out, GCP went into negative carry or reverse carry mode, and made good profits.
Key details
Fund name: DB Platinum FX Concepts Global Currency
Management company: FX Concepts
Promoter: Deutsche Bank
Status: Open
Inception date: 25th June 2009
Strategy
Kind of fund: Hedge Fund
Strategy group: Macro
Sub strategy: Systematic
Region: Global All
Asset classes: Currencies
Particulars
Currency: EUR
Share class name: I1C-DB
ISIN: LU0434316419
Bloomberg ticker: DBFXI1C LX
Domicile: Luxembourg
Listing: Luxembourg Stock Exchange
Fund structure: SICAV
NAV calculation: Daily
Liquidity: Daily
Notice (banking days): 1
Minimum investment: 100
Min. investment currency: EUR
Income: Accumulative
Fees
Entry fee: 0%
Exit fee: 0%
Management fee: 2.1%
Performance fee: 20%
High water mark: Yes
Hurdle rate: No
Analysis
2010 return: 11.68%
Annualised return: 11.73%
Annualised volatility (monthly data): 5.85%
Sharpe ratio (2%) (monthly data): 1.66
Correlation to S&P 500 (monthly data): 2.22%
Correlation to iBoxx (monthly data): 56.11%
Service providers
Administrator: RBC Dexia Investor Services
Custodian: RBC Dexia Investor Services Bank
Auditor: Ernst & Young
