Investment Process
January 2012
CONFIDENTIAL – NOT FOR DISTRIBUTION
Disclaimer
This document is issued by Odin Capital Management Ltd. which is authorised and regulated by the
Financial Services Authority. This document is only made available to Professional Clients.
Information contained in this document is provided on a strictly confidential basis only and does not
constitute an offer to sell or a solicitation of an offer to buy any security, nor is it advice or a
recommendation to enter into any transaction. Any offer to sell or a solicitation of an offer to buy or
sell shall be made solely by a Confidential Offering Memorandum. This document is being circulated
on a confidential basis only and may not be distributed to unauthorized parties and is subject to
modification, updating, validation and amending. All investments involve a risk of loss of capital and
no guarantee or representation can be made that an investment will generate profits or that an
investment will not incur loss of invested capital.
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Contents
Investment objective & philosophy
4
Market instruments
5
Investment process outline
1. Market observation & idea generation
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7
2. Quantitative & fundamental analysis
2.a Assessment of economic condition
2.a Environment case study
2.b Asset case study: gold
2.c Technical timing models
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9/10
11
12
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3. Discretionary trade execution
3.a Case study: positive outcome
3.b Case study: negative outcome
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15
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Risk management
17
Personnel backgrounds
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Investment objective & philosophy
Investment objective
Superior risk-adjusted returns
Limited downside volatility
Negative correlation to equity indices
Low correlation to hedge fund strategies
Investment philosophy
Cross-asset opportunistic approach with global macro outlook
Complementary set of strategies in terms of risk and correlation
Discretionary execution supported by quantitative strategies
Active position monitoring for proactive risk management
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Market instruments
HIGHLY LIQUID FUTURES, LONG AND SHORT
EQUITY
INDICES
• Eurostoxx 50
• S&P 500
BONDS
• US 10-Year
bonds
CURRENCIES
COMMODITIES
• EUR/USD
• Gold
• GBP/USD
• Silver
• Wheat Corn
• German 10-
• Soybeans
Year Bund
• Crude Oil
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Currently trading in Eurex, Cme, Nymex, CBOT products.
Other products may also be considered opportunistically
Investment process outline
1. Idea generation
Ideas are generated from monitoring news & markets as well as
from trading experience
2. Quantitative analysis, Fundamental reasoning
Ideas assessed through a cross-asset framework based on:
 Economic indicators
 Technical timing models
 Inter-market analysis
3. Trade decision & execution
Discretionary execution allows to consider news with impact
Fully automated strategies may also be used
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1. Market observation & idea generation
Constant daily monitoring of
markets
Discuss market with in-house
investment managers & proprietary
traders
Economic calendar review alongside
market themes
Access to specialised prop traders,
from segregated business with no
access to client information or position
Monitor key metrics -Libor, Eurozone
spreads, bond auctions, ratings,
earnings, commodities reserves
Identify suitable market and potential for trade idea
 Observe market response to environment
 Assess general risk appetite
 Identify most suitable market for trade idea
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2. Quantitative & fundamental analysis
Short to medium
term technical
timing models
Assessment of
economic condition
and risk appetite
• Volatility/channel
breakout models
• Short term oscillators
• Counter-trend / meanreversion models
• Stressed Vs non
stressed
• Inflationary Vs noninflationary
Evaluation of cross
market
relationships
• Multi-factor model
• Assessment of leading
& lagging relationships
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2.A Assessment of economic condition
Four major market conditions
 Market characteristics depend on market environment
 Indicators are systematically combined to measure the degree of
market stress and inflationary pressure
Market sentiment
Inflationary pressure
Non-inflationary,
non-stressed
Non-inflationary,
stressed
Inflationary, nonstressed
Inflationary,
stressed
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2.A Assessment of economic condition
Factors used to gauge market sentiment
Equity
volatility
Changes in
market volume
Economic
indicators
Factors used to assess inflationary pressure
Economic
releases
• CPI and PPI
• Employment
Interest rates
• CB interest rate
decisions
• Shape of yield
curve
Commodities
• CRB Index
• Baltic Dry Index
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2.A Environment case study
Stressed non-inflationary environment characteristics
Equity Volatility Index >20
Market
specific
Risk of flight to quality
Models
Characteristics
Cross
Asset
High volumes
Negative correlation between
bonds and equities
Exploit leader-laggard relationships between
equity indices and between equities & bonds
FX and equities act as drivers for
bond yields and commodities
Use equities and currencies to derive
signals for bonds and commodities
Increased correlations among
markets and asset classes
Eliminate correlated trades resulting in a
more concentrated portfolio with less risk
Persistence in short-term
momentum
Technical break-out models and high
frequency oscillators for trade entry
Gaps and spikes
Profit-taking upon volatility rise, trailing stop
loss levels with decreasing distance to stop
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2.B Case study: cross market relationships
Major correlations known by market participants, but leading and lagging
relationships depend on economic conditions
Case study: Gold
A leading market indicator with increasing inflationary expectations.
Primary Factor
Stressed
environment
Non-stressed
environment
Equities
Currencies
Gold
Secondary factor
Interest Rates
Commodities
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2.C Technical timing models
The identification of both general economic condition and market to trade
are essential for the choice of timing model.
Description
Type of models
Pattern recognition
Trade entry in tight and congested
ranges with decreasing volatility
in anticipation of larger move
Technical break-out
Break through key levels defined
by common technical formations,
i.e. double or triple tops/bottoms
High frequency oscillators
Trade entry on the crossover of two custom
moving averages
Countertrend models exploiting
shorter-term reversals
Overbought and oversold areas
identified using confidence bands
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3. Discretionary trade execution
NEED TO COVER:
Trade entry timing and size
Active risk management: where we place and
move stop / take profit
Overnight risk: Important given investment
horizon
Flexibility
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3. Case study: positive outcome
TO COMPLETE.
Winning trade example
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3. Case study: negative outcome
TO COMPLETE.
LOSING TRADE EXAMPLE
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Risk Management
Objective of risk management approach
Control and minimize loss of capital at portfolio and asset class levels,
with limited portfolio volatility
Risk limit at portfolio level
• Review positions in case of 5%
loss in any 20-day period
Risk limit per asset class
• Maximum 2% risk per day
per asset class
• Maximum 10% risk in any 20day period
Portfolio volatility target
Volatility target: 12% p.a. with a 8-16% band
Position sizes adjusted if maximum risk level or portfolio volatility reached
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Personnel background
Patrick Moerth, Founder & CIO
Patrick Moerth is the founder and chief investment officer of Odin Capital
Management Ltd. Patrick has more than 10 years professional trading
and investment experience in the hedge fund industry. Prior to founding
Odin Capital Management he was responsible for Global Macro and
quantitative strategies in the hedge fund group of Credit Suisse in Zurich.
Before that, he entered the industry as a hedge fund analyst at FERI
Alternative Assets. He holds a PhD in economics from the University of
St. Gallen, a European Masters of Business Sciences and a Masters of
International Business from the University of Vienna. He passed all three
levels of the CFA program and both levels of the CAIA program as well as
the GARP FRM examination. He is the author of several hedge fund
specific publications in recognized scientific journals and specialized
books.
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Personnel background
Tigrane Kibarian, Head of Risk and Operations
Tigrane Kibarian is Head of Risk and Operations at Odin Capital
Management Ltd, coming with over 8 years of market experience. He
started his capital markets career on the equity trading floor of Goldman
Sachs in London. Primarily in charge of equity strategy, he was then
promoted into the portfolio transition management team responsible for
large institutional portfolio restructurings across all asset classes. Risk
management and technical excellence were critical in his success for the
role. Following that experience, Tigrane started trading his own proprietary
portfolio, active across liquid currency pairs and equity indices. Prior to
capital markets, Tigrane worked as an auditor at Arthur Andersen and as
a corporate financial professional at General Electric in both France and
Italy. He has an excellent understanding of risk and financial markets, as
well as good business acumen. Tigrane graduated from leading French
Business School ESSEC.
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