Category: Global Macro (Stocks, Currencies and Commodities)
Tag: Trend following with enhanced risk management.
Goal: Attractive absolute returns. Capital preservation. Mitigation of common hedge fund blow up risks.
Differentiators: Capitalizing on follow-through as opposed to price dislocations. Highly diversified. Highly liquid. Dynamic
exposure adjustments. Atypical return stream. Mitigated crowding risk.
Edge: Balanced combination of trading best practices.
STRATEGY COMPONENTS
Trend Following
• Asset Purview
o BELIEF: Material world changes manifest as trends in stocks, currencies and/or commodities.
Combining asset classes improves risk-adjusted returns.
o BEHAVIOR: Include US stocks as well as futures of currencies and commodities.
o BENEFIT: Positioned to capture largest trends in stocks (US), currencies and commodities.
• Entry
o BELIEF: Unanticipated information is perpetually forthcoming as are the trends they produce. Every
large-scale trend is preceded by a breakout of a relatively significant trading level. Scaling with liquid
assets poses fewer risks than scaling with illiquid assets.
o BEHAVIOR: Use breakouts as entry criterion. Include only liquid assets.
o BENEFIT: Synchronized with major trends. Systematized inclusion of performing assets. Increased
long exposure during robust rallies, and less otherwise. Ample liquidity for efficient entry/exit.
Risk Management
• Position Sizing
o BELIEF: Position sizes should reflect conviction.
o BEHAVIOR: Given the non-biased nature of this strategy, all positions receive the same risk budget
and are sized according to their individual volatility characteristics.
o BENEFIT: Protected from any single position making or breaking overall performance.
• Scale Out
o BELIEF: Prices that accelerate in parabolic fashion are subject to steep retracements. Exiting
incrementally, especially during relatively steep moves, helps to limit the impact of reversals.
o BEHAVIOR: Monitor velocity of moves and scale out during high velocity events.
o BENEFIT: Protected from debilitating losses and liquidity concerns during reversals.
• Hedging
o BELIEF: It is easier to make money long when more constituents participate in rally. It is easier to
make money short when more constituents participate in decline.
o BEHAVIOR: Monitor size and breadth of rally and hedge during times of poor participation.
o BENEFIT: Safeguarded against quick, surprise reversals.
• Stops
o BELIEF: Loss containment is the key to sustainability and survivorship.
o BEHAVIOR: Establish exit points for each position congruent with its individual volatility and risk
budget.
o BENEFIT: Limited losses to pre-determined risk budget. Allow stocks to fluctuate within normal
ranges.
The material contained herein does not constitute an offering of any security, product or service, including Continuum Partners, LP (the “Fund”). Offering of interest in the Fund may only be made by means of delivery of an approved confidential
offering memorandum (the “Offering Memorandum”). This presentation is for informational purposes only, is confidential and may not be reproduced or distributed. This presentation is qualified in its entirety by the Offering Memorandum, which
should be carefully read prior to any investment in the Fund. The purchase of Limited Partnership Interests is suitable only for sophisticated investors for whom an investment in such Fund does not constitute a complete investment program and
who fully understand and are willing to assume the risks involved in such Fund’s investment program. An investment in the Fund involves a number of risks. For a description of the risk factors associated with an investment in a Fund, please
refer to the section discussing risk factors in the Offering Memorandum. Limited Partnership Interests in the Fund are not deposits, obligations of, or endorsed or guaranteed by any bank and are not insured by the FDIC, the Federal Reserve
Board or any other government agency. Hedge Fund investments are speculative and past performance is not indicative of future results. Hedge Fund interests are also highly illiquid and are subject to restrictions on redemptions and transfers.
Supporting documentation shall be furnished upon request.